Entrepreneurs often cite the limited liability protection afforded them by way of forming a corporation or a limited liability company as a primary purpose in creating the entity. Sure, there is the aura of sophistication and achievement that comes immediately along with it (as well as several other benefits), but this personal protection seems to be a key factor in most formation decisions.

Limited liability is the concept that the company’s debts and liabilities are its own—an owner of the company is not personally liable for them. This is instrumental in business creation as it allows for a separation between the obligations of the company and the assets of the owners while promoting entrepreneurial risk taking. Generally, if the company fails, only those assets that belong to the company, risk being lost – not the owner’s property. Of course, the homestead may be at risk when the owner uses his or her home as collateral for company obligations. However, there is a lesser known risk to the property under the concept of “piercing the veil.”