A corporation is a business owned by stockholders. The stock is a certificate representing the ownership interest in a corporation. A business becomes a corporation when the state grants a charter to the company and the state approves its articles of incorporation and the first stock share is issued. The articles of incorporation are the rules approved by the state that govern the management of the corporation. Unlike a proprietorship and a partnership, a corporation is a legal entity distinct from its owners. If a proprietorship or a partnership cannot pay its debts, lenders can take the owner’s personal assets to satisfy the obligations. But if a corporation goes bankrupt, lenders cannot take the personal assets of the stockholders.
In a limited liability partnership, each member/partner is liable only for his or her own actions and those under his or her control. Similarly, a business can be organised as a limited liability company. In an LLC, the business – and not the members of the LLC – is liable for the company’s debts. This arrangement prevents an unethical partner from creating a large liability for the other partners/members.