One of the main advantages to incorporating a business is to
better allocate risk: incorporation helps protect your personal
assets (most obvious being your house, car and bank account) from
the liabilities and debts of your business. Incorporation makes the
business an independent legal entity. Separate and distinct from
you – just like any natural person – the company has
its own assets and liabilities; it has its own bank account; it
enters into contracts; it can sue and be sued. In essence, it is a
"stranger" from you personally. Therefore, generally
speaking, if the company gets itself into debt, only the
company's assets are potentially on the line – not yours.
This allows you, as a business owner, to enjoy a certain amount of
freedom to take risks, enter into contracts and carry on business,
without the worry of losing your shirt if the venture is not
successful or somehow gets into financial trouble.
