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I'm asking why the paper is necessary, as in why shouldn't the limited liability just be a thing that exists in the first place.
It could exist as an automatic thing, but you need to carefully define in what situations it exists. If anything goes someone will do something absurd - my company is a hitman for so you can't try me for murder only my company which only has the pistol for assets. Now take the above but for something that is borderline - where are the borders. Should my car automatically be owned by a LLC (this is how most small airplanes are - you often don't sell the airplane you sell the company that has that airplane as an asset). There are many many situations in life where a LLC might be useful, most of us don't bother most of the time and are just fine, but maybe we should anyway?
However there is a different consideration: in pretty much all cases where someone wants a LLC the will need some paper anyway because they want different taxes and so you may as well require paperwork for all cases even those few where taxes won't be a factor.
I get the paperwork for taxes, just not why an individual should be held as more responsible for the same actions as a company if they didn't fill out paperwork to be a company. Why are companies special?
The idea behind it is that everyone engages with the company, not an individual. You visit Sam's widgets, and buy a widget from Sam. A week later, Sam sells the business to Joe and disappears. It's now Joe's widgets, with all the same stuff and people (aside from Sam). Your widget breaks under warranty. Is Joe obligated to fix it?
You can see the obvious problems if you say no. Coincidentally, this is the case with all the AliExpress crap on Amazon.
But if Sam isn't required for business continuity, it can build consumer trust. Even if Sam leaves, customers know they will be taken care of. They can buy with confidence that someone at Sam's Widgets will keep supplying their widget needs.
Yes, it's possible for a corporation to escape liabilities. But it's the case for real people, too. People declare bankruptcy all the time, although there are certain debts that cannot be erased. These often don't apply to corporations.
Have you ever worked at a place and disagreed with a decision made by the higher ups? Imagine if you were on the hook for every single widget you produced, or claim you processed, or whatever else
Because the line does need to be drawn somewhere. You can't just go out, cause harm to someone, and then claim "Oh, that harm was done by my company, not me personally. Incidentally, my company only has like $20 in assets for you to recover."
The paperwork also doesn't entirely grant you the limited liability. You need to actually operate the company as a separate entity from yourself. If you "piece the veil" between individual and company, you may not be able to claim limited liability in court.
Why though? Why does 'operating as a company' have less liability than an individual?
See 2 comments ago. Nobody except the ultra rich could afford to go into business if it meant risking all of their personal assets.
And like already mentioned: it's not less liability, it's separate liability. Misconduct as a business (which may not even be the owner's fault, it could be an employee's) can risk all of the business assets, but not personal assets owned outside the business.
The company doesn't have 'less' liability, it has separate liability.
You wouldn't expect that you would be responsible for the actions of a roommate in most cases. Creating a business entity separates the business from the person running it. The taxes are separate, the owned properties are separate, the liabilities are separate.
Say you own a small restaurant, The building it resides in (if you owned it) is owned wholely by the company. You also own a personal residence. Now a customer comes in and suffers some injury and they sue. They would sue the business and if it all went badly for you they might take ownership of the business assets including the building it's in. They could NOT however come take your personal residence that's not property of the business.
If you tried to do some shady biz and change ownership of the assets away from the company before a judgement was made then the customer could feasibly 'pierce the veil' as they say and include you into the suit personally.
You are explaining how, not why.
Why? Because it creates a separate entity. If you where to hypothetically clone yourself, should you be responsible for the actions of the clone? Perhaps more directly, assuming you work for someone, should the owner of whatever place your work for be personally/individually responsible for your actions?
That separation is created because otherwise nobody would ever employ anyone if their employee's actions could get them sued personally.
Not all businesses, including companies, have employees. Sometimes they are just the owner(s) doing all the work.
Right, and there are more types of liability than an employee's action...