Under law, a corporation is considered to be a legal person distinct from the shareholders who own
it. This means that individual shareholders are not personally liable for the debts and obligations of a
corporation. If a corporation fails, the shareholders will only lose the assets that they originally
invested to purchase their shares. In a corporation, income is taxed twice. First, the corporation pays
tax on any net profits. Second, the shareholders will pay personal income tax on any dividends they
receive from the corporation. The dividends paid to shareholders are paid out of the after-tax profits
of the corporation.