I am not an attorney, so take this as the best guess of somebody who's been in business for a lot of years -- definitely not legal advice.
In my experience, the general idea that having the corporation takes your personal finance out of the mix is just a myth. Until your corporation has a large asset base and years of history, every time you want trade credit, you have to sign the personal guarantee. And, more important, every time you want commercial credit, as in a bank loan, you have to submit your personal financial statement and sign personal guarantees as well. I think what happens is that technically, legally, the corporation is a separate entity, not you; but the creditors don't buy that for a minute, so they insist that you show your personal finances and sign your personal guarantee.
There's a very powerful word that the lender can use to go straight through that would-be corporate shield: "no." And the know how to use it. I've owned a corporation for 22 years now, and it was only in the last few years that we managed to do anything significant in this area without the personal guarantee.
As for whether the corporate shield protects your personal assets, I can find lots of attorneys to say yes, they do -- but I'm still skeptical. My fear is that in a pinch the creditors would sue both your corporation and you as the person responsible for it, alleging fraud or misuse of funds or something like that. Maybe I'm just worrying over nothing, but I've never felt safe from responsibility because I was shielded by a corporation.
I don't blame you for being confused. These things are not that simple. Consult an attorney who you trust for further advice.
Question added to topic Grow Your Business • March 30, 2009
Would I benefit from changing my LLC/sole proprietorship business to a corporation?
Is it true that if your personal credit is not great, but you own a corporation it is easier to get financing because your personal credit is not looked at? Also, if you own an LLC/sole proprietorship and something went wrong, your personal and business assets are in danger? My business was an LLC partnership, but the partnership was dissolved and I am the sole owner.