What is a Corporate Entity?
A corporate entity—whether a corporation, limited liability company, limited liability partnership, or otherwise—has its own distinct identity and conducts business independently from its owners. Just like a person, the entity can own property, accrue debt, enter into contracts, and open bank accounts, all in its own name. While individuals act on behalf of the company, they remain legally distinguishable from the entity itself. For example, the entity will have its own legal name, the equivalent of its own social security number (called a federal employer identification number or tax identification number), and file its own tax returns.
Because the corporate entity exists apart from its owners, as a rule the people associated with the company (for example, owners, shareholders, managers, and members) are not personally responsible for its obligations. Thus, if a corporation borrows $50,000.00 in unguaranteed debt, the shareholders are not individually liable on that note. However, if the owners fail to honor the corporate form—for example, they commingle personal and business funds or property, fail to make required filings or maintain appropriate records, or undercapitalize the business—the “corporate veil” can be “pierced” by a court and the owners held personally liable for entity debt.
In addition, owners remain responsible for their own “bad acts.” For example, a physician with an ownership interest in an incorporated medical practice could still be individually liable for medical malpractice if her errors or omissions are the legal cause of an injury. The medical corporation may also have liability, but the other physicians would not have personal liability simply by virtue of joint corporate ownership.