Question

The reason a professional such as a lawyer or doctor would incorporate his/her business is

Select one:
a. To be assured that another professional firm would not take over and make decisions - similar to a hostile takeover.
b. To comply with the law because insurance companies require that they be corporations.
c. To protect his/her other assets with limited liability.
d. To protect his/her assets with unlimited liability.

Answer 1

A professional would incorporate their business to protect personal assets with limited liability, as a corporation is considered a separate legal entity.

Step-by-step explanation:

The reason a professional such as a lawyer or doctor would incorporate his/her business is to protect his/her other assets with limited liability. Incorporation offers the advantage of limiting an individual’s financial and legal liabilities.

Unlike sole proprietorships which face unlimited liability, a corporation is a legal entity separate from its owners, thus shielding personal assets from business debts and legal actions.

This legal structure is critical to secure investments and to take risks without jeopardizing the owner’s personal wealth.