Why one incorporates in the first place

Spam Kings points out that the self proclaimed Spam King, Scott Richter, paid himself a $1M salary in 2004. This is relevant in that his company is currently filing for bankruptcy to avoid creditors... in this case the major creditor being in the form of Microsoft and their legal team, who are seeking $40M.

As you can see, this is exactly why corporations are setup in the first place. Were Scott Richter to have acted as a sole proprietor, that lawsuit would then seek the money directly from him and would drain him of his assets - and he would have to declare bankruptcy himself. But since his company is a legal and tax entity in itself, he is removed from it and simply an employee (although also part owner I would assume).
So while the company can tank and the assets are all torn away, he can retain his own assets and be isolated from these legal cases. The company is at fault and not him, in theory.

It will be interesting to see if the lawyers try to show faults in the corporation setup and if Richter is really that isolated.

Posted by Eric at April 13, 2005 11:22 AM | TrackBack