Why is it important to form a company?

It is important to form a company because it allows the business owner to insulate personal assets from corporate liability. Corporate liability may stem because a third party commits a crime on your property such as burglary, rape, assault and/or battery. It may stem from a slip and fall on a wet floor.  It may stem from tank leak, which contaminates the stream nearby.

There are various ways in which a corporate liability can occur. Although there is no one form that protects from all types of corporate liability, some business forms at least limit the liability. For example, if a business owner forms a corporation, the owner can limit his losses from the above mentioned examples to amount invested in the corporation.  In other words, the business owner can protect the personal assets.