One of the most powerful and important concepts in business law is the “corporate veil.” This is a legal principle that separates the identity of a corporation from the identity of its owners (the shareholders). The corporation is treated as its own “legal person,” capable of entering into contracts, owning property, and suing or being sued in its own name. The “veil” is the metaphorical barrier that protects the personal assets of the owners from the debts and liabilities of the corporation. This concept of limited liability is the primary reason why the corporate structure is the dominant form of business organization in the world.

Limited liability means that if a corporation incurs a debt or is successfully sued, the financial liability is limited to the assets of the corporation itself. Creditors can seize the corporation’s bank accounts, property, and inventory, but they cannot go after the personal assets—such as the homes, cars, or personal savings—of the shareholders. The most a shareholder can lose is the amount they have invested in the company’s stock. This protection is what makes it possible for individuals to invest in businesses without risking personal financial ruin.