This week we are learning about business entities.The main thing to remember about a business entity is
Question:
This week we are learning about business entities.The main thing to remember about a business entity is that it is a "legal fiction" created to protect owners of a business from liability.One example is a company that goes out of business and cannot pay its employees the wages they already worked for and earned.The owners of the company might have enough personal money and assets to pay the wages owed by the company, but the employees will generally not be able to recover their wages from the owner personally.
On one hand, this encourages people to invest in their businesses because they can protect their personal assets from any business debts.On the other hand, business owners may make riskier decisions that negatively impact their employees and creditors because they can protect their personal assets.
Corporations are treated as persons under the law.They have Constitutional rights such as due process and free speech (i.e., campaign contributions).They can sue and be sued.They are taxed as an entity separately from their owners.What do we think about this "legal fiction"?What are the pros and cons of creating a "legal fiction" that separates a business from its owners?