If you lose a lawsuit (or are hit by some flavor of meteor) the business has to pay for it to be able to continue. All that creating a corporation does is to cl

If you lose a lawsuit (or are hit by some flavor of meteor) the business has to pay for it to be able to continue. All that creating a corporation does is to clearly separate what are personal assets from corporate assets. It may be easier to visualize if you imagine there are several shareholders. Each would want it clear what were the company's assets and what were their personal assets (in addition to their share of the company). Look at it this way, you buy 100 shares of GM which subsequently goes bankrupt. Your shares may be worthless but GM's creditors cannot come after you as a shareholder for more than the equity that you contributed (the money you paid for your now worthless shares).