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A properly formed corporation enters a contract through an authorized officer and later defaults. The creditor sues a passive shareholder personally, arguing that the shareholder owns 30 percent of the corporation and should therefore pay 30 percent of the debt.
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Once properly formed, a corporation is generally a separate legal entity, and shareholders are not personally liable for corporate debts merely by owning shares. A corporation becomes separate only after ten years of profitable operation. A corporation is separate from shareholders only if it has exactly one shareholder. Shareholders are personally liable for all corporate debts in proportion to share ownership.

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