A business becoming incorporated is an example of which risk management strategy?

Incorporating a business is an excellent example of the transfer risk management strategy. When a business incorporates, it creates a separate legal entity that limits the personal liability of its owners or shareholders. This means that, in the event of a lawsuit or financial difficulty, the personal assets of the owners are generally protected, and liabilities are confined to the corporation itself. This effectively transfers the risk from the personal level to the corporate level, allowing shareholders to invest without fear of losing their personal assets.

In terms of risk management strategies, the focus of transfer is on shifting risk exposure to another party, often through mechanisms like insurance or forming a corporation. By incorporating, business owners are transferring certain legal risks and responsibilities to the corporation. Thus, this action exemplifies the idea of risk transfer by creating a legal barrier that protects individual owners from direct risk associated with the business’s operations.