How does forming an Oklahoma corporation help protect you from liability?

STS-114 Thermal Protection System from NASA on The Commons

I advise people to form an entity, such as a corporation, to provide protection for them from the liability their business can create.  You can read more about individual liability and why you need to protect yourself from individual liability in this Blog Post.

The protection from individual liability for the people who own the company is one of the essential benefits of having a corporation. 

Example
Think in terms of a landscaping business that accidentally hits a gas line leading to people being injured and the property being destroyed.  The landscaping business is going to be responsible for huge damages.  But, if the landscaping business was working through a corporation, there is a good chance that the liability will stop with the corporation and not bleed into the corporation’s owners’ assets.  If the owners were operating the business without a corporation or Oklahoma limited liability company, as sole proprietors, the owners’ assets would be at risk of being taken to pay the damages from the accident (liability insurance coverage might limit the owners’ risk in this scenario). 

The Wall of Separation
I refer to this protection as the “wall of separation.” The corporation (or in many cases the Oklahoma LLC) is the “wall” between the individuals who own the company and the liability created by the company.  On one side of the wall rest the owners’ assets and on the other side of the wall sit all the unknown liabilities that come from operating a business. 

When is the wall’s protection lost?
One way the wall breaks is when a corporation’s charter is suspended.  

 

Posted by Shawn Roberts

On this blog, I write about and try to answer practical Oklahoma legal questions. My focus and most experience is in estate planning and business issues including Oklahoma non-compete law. I make a living as an attorney in the law firm I founded, Cazes Roberts, PLLC in Oklahoma City. I live in Edmond with wife Amy and my two children, Sam (17) and David (9). We live precisely in the path of where the "wind comes sweeping down the plains."