Utah Corporate Law Made Simple: Are You Protected as a Shareholder?

First-time investors who are not familiar with Utah corporate law often have qualms about purchasing company stock. After all, as soon as you buy even a single share in a corporation, you become one of its owners. Does that mean you could be held accountable for the organization’s actions or – worse – its debts?

The short answer is no. Here is why.

How Utah Corporate Law Looks After Natural Persons

The modern corporation is, without exaggeration, one of the most important human inventions in the past two hundred years. It has completely revolutionized the way we do business, resulting in unprecedented economic growth worldwide.

And to think all that became possible thanks to a simple yet genius mind trick: corporate personhood. Under the U.S. Constitution, a corporation is its own person, independent of its incorporators, directors, managers, and shareholders. Like any natural person, it can:

• Acquire, hold, and transfer property
• Sue and be sued
• Have a domicile and place of residence
• Enjoy protection from unreasonable seizures and searches
• Enjoy rights to free speech, due process, and equal protection under the law
• Generate income and pay state and federal taxes

The easiest way to understand how corporate personhood works is to look at the lifecycle of a typical corporation.

The Life of a Corporation

A corporation is created by one or more people – called incorporators – by permission of the Utah State Government. To obtain approval, they must file their articles of incorporation with the Utah Division of Corporations.

Once the state grants permission, the incorporators will designate a board of directors and start issuing stock. Thereafter, the shareholders elect the directors. The board of directors has a fiduciary duty to establish a corporate policy and preserve the corporation. They also have the power to hire managers (also known as officers) to run the business and oversee its day-to-day affairs.

However, neither the incorporators nor the directors own the corporation. Ownership lies solely with the shareholders.

Here is where things get interesting. Despite owning the corporation, shareholders have no management responsibilities or fiduciary duties. They also enjoy limited liability. In plain English, it means that, save for a few exceptions, shareholders are not liable for any debts the corporation may have beyond their original capital contributions.

Moreover, as a shareholder, you can sell your shares and transfer your ownership interest whenever and to whomever you want.

Think of limited liability as a wall that Utah corporate law erects between the shareholders and the corporation. This way, the corporation is an entirely separate person – even if there is just one shareholder – and its acts and obligations are not those of its owners. We call that the corporate veil.

Have More Questions About Utah Corporate Law?

Contact Franchise & Business Law Group today and book your free consultation to have our team answer all your questions.