There is a term in the legal industry called the “Corporate Veil.” The corporate veil protects business owners from personal liability should there be a lawsuit or other dispute involving the company.
For example, let’s say, to make it simplistic, that your corporation has $50,000 worth of equipment and another $50,000 in the bank. All told, your assets total $100k.
Along comes a disgruntled employee who sues the company for $500,000, and they win. If the business owner has been keeping-up with the legal formalities associated with operating a corporation, then his personal assets will often be protected. On the other hand, if the owner hasn’t been following the state’s requirements for a corporation, then it’s possible that this disgruntled employee could walk away with not only the business’ assets but those of the owner as well, and, yes, this may even include the owner’s personal funds, retirement accounts, house, cars, etc. depending on the circumstance.
One of the great things about forming a corporation is having the ability for your business to operate under the protection of the “corporate veil”, but merely filing filing Articles of Incorporation online will most likely not be enough to prevent that extremely important veil from being pierced when trouble is lurking