A friend of mine owns a small business and since he "sold" shares of the company to friends and family to raise money to open it, he filed the business as a Corporation C.
He is now horribly in debt because he did not balance his budget wisely, and he is planning on filing bankruptcy. He has not told any of the "shareholders" because he says when a Corporation C files bankruptcy the government and collectors cannot sell or reposess the shareholders personal finances and property to cover the Corporation's debt, they can only go after the finances, stock and profits of the business to cover the debts.
Everyone else I have spoke with about this said he is full of BS and that if the business does fold and he files they will start selling off business stock and fixtures, and if that does not cover the debt they will start with the highest sharehold and work their way down until they get all of their money.
Which is true? Who is right?
~~ Abe
Who is Responcible in a Corporation C set-up?
One of the reasons that people set up corporations is to limit liability. Your friend is right. Shareholders have absolutely no personal liability for a failed business (unless they signed personal guarantees for the debts)
elephant ear
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