What are the limits on the liability protection provided by incorporating?

Protecting your personal assets from being reached to satisfy your company’s obligations is the primary legal reason to form your business as a corporation or limited liability company. But there are limits on the liability protection provided by incorporating. For one thing, corporate principals are always liable for their own torts committed in the performance of their corporate duties. So you cannot use your corporation to defraud someone and expect that your personal assets will remain safe if a judgment is entered against you. In a more common example, professionals such as doctors and lawyers who commit professional negligence/malpractice can be held personally liable, even if they do business through a professional corporation or LLC. Apart from tortious conduct, however, your personal assets are protected from being applied to satisfy corporate contracts, so long as you treat your company as a separate entity from yourself, such that there is no occasion for a court to “pierce the corporate veil” and visit liability on you personally. For more information, see our articles on why Incorporating Does Not Protect You from Your Own Negligence and Reducing Risk of Alter Ego with Some Simple Things.