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  1. #1

    Limited liability in a free market society...

    I was looking on Mises and was surprised that there is even a debate as to whether limited liability should be legal. Limited liability (ie. corporate personhood) is completely incompatible with libertarian philosophy IMO.

    The idea that company's like Bain can buy a company, rip away and sell off all it's assets piece by piece, have the company take out loans in order and use that money to pay themselves and then bankrupt the company, rinse and repeat while taking no personal responsibility for the bankruptcies sounds like crony capitalism at it's finest.

    Most of the problems associated with unlimited liability could easily be negated through liability insurance anyways.

    Thoughts?
    Last edited by Bohner; 11-30-2012 at 12:42 AM.



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  3. #2
    Just like money, banking and finance, the history of corporations in America, and its ramifications toward the erosion of individual rights and liberties, is something for which very few people are aware.

    Excerpted from here...

    Initially, the privilege of incorporation was granted selectively to enable activities that benefited the public, such as construction of roads or canals. Enabling shareholders to profit was seen as a means to that end. The states also imposed conditions (some of which remain on the books, though unused) like these*:

    • Corporate charters (licenses to exist) were granted for a limited time and could be revoked promptly for violating laws.
    • Corporations could engage only in activities necessary to fulfill their chartered purpose.
    • Corporations could not own stock in other corporations nor own any property that was not essential to fulfilling their chartered purpose.
    • Corporations were often terminated if they exceeded their authority or caused public harm.
    • Owners and managers were responsible for criminal acts committed on the job.
    • Corporations could not make any political or charitable contributions nor spend money to influence law-making.


    For 100 years after the American Revolution, legislators maintained tight control of the corporate chartering process. Because of widespread public opposition, early legislators granted very few corporate charters, and only after debate. Citizens governed corporations by detailing operating conditions not just in charters but also in state constitutions and state laws. Incorporated businesses were prohibited from taking any action that legislators did not specifically allow.
    I didn't read the whole thing, so I don't know all of what their angle is, but the above quote is exactly correct. Corporations are creatures of the State, but we've so come to accept their place in the market, and their standing in politics and under the law, even going so far as to grant them equal status with individuals with RIGHTS--that we are now used by them routinely as human shields; as if all "persons" were created equal. Which they are not. But those lines are blurred beyond all recognition now, and free and natural individual Citizens are the losers every time. SCOTUS and the lower courts routinely uphold laws that relegate rights to privileges (often under the Commerce and Necessary and Proper Clauses), for no other reason than that it COULD apply to corporations.

    Limited liability is only one way that [now practically immortal] corporations have artificially surpassed Real Individuals in terms of their own superiority in the eyes of the law, in terms of rights, powers, duties and obligations. However, just like everything partisan stems from someone not wanting to part with their favorite artificial economic advantages, there are otherwise liberty loving people who can't tell the difference between themselves and a creature of the state--especially when they slop from the State privileges trough, and are one themselves. That's when cognitive dissonance kicks in, and they start rationalizing from their own self interest, which has nothing to do with a truly free market.
    Last edited by Steven Douglas; 11-29-2012 at 11:13 PM.

  4. #3
    Quote Originally Posted by Steven Douglas View Post
    Just like money, banking and finance, the history of corporations in America, and its ramifications toward the erosion of individual rights and liberties, is something for which very few people are aware.



    I didn't read the whole thing, so I don't know all of what their angle is, but the above quote is exactly correct. Corporations are creatures of the State, but we've so come to accept their place in the market, and their standing in politics and under the law, even going so far as to grant them equal status with individuals with RIGHTS--that we are now used by them routinely as human shields; as if all "persons" were created equal. Which they are not. But those lines are blurred beyond all recognition now, and free and natural individual Citizens are the losers every time. SCOTUS and the lower courts routinely uphold laws that relegate rights to privileges (often under the Commerce and Necessary and Proper Clauses), for no other reason than that it COULD apply to corporations.

    Limited liability is only one way that [now practically immortal] corporations have artificially surpassed Real Individuals in terms of their own superiority in the eyes of the law, in terms of rights, powers, duties and obligations. However, just like everything partisan stems from someone not wanting to part with their favorite artificial economic advantages, there are otherwise liberty loving people who can't tell the difference between themselves and a creature of the state--especially when they slop from the State privileges trough, and are one themselves. That's when cognitive dissonance kicks in, and they start rationalizing from their own self interest, which has nothing to do with a truly free market.
    Yup. The government-created corporate business form is a BIG problem. While it is certainly possible in a free market for two individuals to enter into an agreement whereby one or both of them have limited liability to each other, that is MUCH different than creating an artificial entity which BY LAW has limited liability automatically in every encounter, voluntary or not. And lives forever.

    To me, the whole idea that an imaginary, immortal entity can own property and enter contracts is bizarre and not at all consistent with any concept of property rights that I can embrace. Only human beings should be able to own property or enter contracts.
    The proper concern of society is the preservation of individual freedom; the proper concern of the individual is the harmony of society.

    "Who would be free, themselves must strike the blow." - Byron

    "Who overcomes by force, hath overcome but half his foe." - Milton

  5. #4
    LibForestPaul
    Member

    Quote Originally Posted by Steven Douglas View Post
    Just like money, banking and finance, the history of corporations in America, and its ramifications toward the erosion of individual rights and liberties, is something for which very few people are aware.



    I didn't read the whole thing, so I don't know all of what their angle is, but the above quote is exactly correct. Corporations are creatures of the State, but we've so come to accept their place in the market, and their standing in politics and under the law, even going so far as to grant them equal status with individuals with RIGHTS--that we are now used by them routinely as human shields; as if all "persons" were created equal. Which they are not. But those lines are blurred beyond all recognition now, and free and natural individual Citizens are the losers every time. SCOTUS and the lower courts routinely uphold laws that relegate rights to privileges (often under the Commerce and Necessary and Proper Clauses), for no other reason than that it COULD apply to corporations.

    Limited liability is only one way that [now practically immortal] corporations have artificially surpassed Real Individuals in terms of their own superiority in the eyes of the law, in terms of rights, powers, duties and obligations. However, just like everything partisan stems from someone not wanting to part with their favorite artificial economic advantages, there are otherwise liberty loving people who can't tell the difference between themselves and a creature of the state--especially when they slop from the State privileges trough, and are one themselves. That's when cognitive dissonance kicks in, and they start rationalizing from their own self interest, which has nothing to do with a truly free market.
    any good historical books for recommendation?

  6. #5
    Quote Originally Posted by LibForestPaul View Post
    any good historical books for recommendation?
    Gangs of America: The Rise of Corporate Power and the Disabling of Democracy

    Geared more to appeal to the Occupy people, I think, but a very entertaining read nonetheless--factual and informative.


    For a bit more scholarly background history of how the corporate camel got its nose in the legal and political tent, read:

    The Corporate Reconstruction of American Capitalism, 1890-1916: The Market, The Law And Politics By Martin J. Sklar

    That's a good one because it covers the rise of economic liberalism during the Progressive Era, and how Roosevelt, Taft and Wilson factored into all of it. Just as the Fed gets defended by the political left and right, each for their own non-principled self-interested reasons, a similar story plays out with the rise of corporate powers. My take is that presumably, anything that concentrates and collectivizes wealth/power was also thought to be easier to socially and centrally engineer. That's the madness behind the method, at least, and there's something to that, in a "At least my dog is on a leash and has to obey me" kind of way. It's not nearly as easy to regulate and control a herd of individual Citizen cats with actual rights, but if you give corporations favored status and artificially empower them with greater advantages geared toward concentrating wealth, they are presumably much easier to tax and control ::: snicker :::, as creatures of the state acting as a matter of privilege, and not rights.
    Last edited by Steven Douglas; 12-01-2012 at 10:08 PM.

  7. #6
    Limited liability is an invitation to fraud, as Bain demonstrated so skillfully.

  8. #7
    Quote Originally Posted by thoughtomator View Post
    Limited liability is an invitation to fraud, as Bain demonstrated so skillfully.
    Elaborate.

  9. #8
    Quote Originally Posted by thoughtomator View Post
    Limited liability is an invitation to fraud, as Bain demonstrated so skillfully.
    Why do I care that Bain-type entities takes apart failing companies in the most profitable manner again? I keep forgetting. What fraud was committed, exactly?

    And in fact, why do we keep using Bain as an example, when there are literally hundreds of companies that do the same thing? This sounds like a liberal talking point.

    I've read the whole thread, and haven't seen anything that changes my mind about corporations and LLCs. I have no problem with the fact that corporations exist, I think they are necessary, and I think the problem is, as always, government.



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  11. #9
    Quote Originally Posted by angelatc View Post
    Why do I care that Bain-type entities takes apart failing companies in the most profitable manner again? I keep forgetting. What fraud was committed, exactly?

    And in fact, why do we keep using Bain as an example, when there are literally hundreds of companies that do the same thing? This sounds like a liberal talking point.

    I've read the whole thread, and haven't seen anything that changes my mind about corporations and LLCs. I have no problem with the fact that corporations exist, I think they are necessary, and I think the problem is, as always, government.
    I believe there are some pretty bad ways of how corporations are currently handled by government.

    However, I believe bankruptcy laws are were the real problem lies. Those laws do nothing but protecting debtors and screwing lenders. And that's true for corporate bankruptcy as well as for private bankruptcy (at least where I live, and I believe it's pretty much the same everywhere in the industrialized world).

  12. #10
    Quote Originally Posted by Danan View Post
    I believe there are some pretty bad ways of how corporations are currently handled by government.

    However, I believe bankruptcy laws are were the real problem lies. Those laws do nothing but protecting debtors and screwing lenders. And that's true for corporate bankruptcy as well as for private bankruptcy (at least where I live, and I believe it's pretty much the same everywhere in the industrialized world).
    In bankruptcy, lenders (bondholders, banks and vendors) get first dibs, after payroll obligations. Stockholders (owners) are last on the list of people who get anything.

  13. #11
    Quote Originally Posted by angelatc View Post
    In bankruptcy, lenders (bondholders, banks and vendors) get first dibs, after payroll obligations. Stockholders (owners) are last on the list of people who get anything.
    I don't know about the American situatoin, but here the laws are really silly.

    If you go bankrupt, you file for bankruptcy and get a guy assigned to you by a judge who earns quite a fortune out of your already failing business. Then you can make a plan, say every first level creditor gets 30%, everyone else nothing. If the majority of those creditors agree (or 2/3, I don't know exactly) it's over and you are debt-free. If not the process continues and judges, lawyers, etc. suck ever more money out of the company, decreasing the expected return for creditors ever more.

    There's also a lot more to it, but basically creditors are getting forced into accepting ridiculously low quotas while debtors get a chance to be debt-free again relatively easy. That obviously makes it more interesting to amass huge amounts of debt.

    I do understand that banks and other lenders calculate those regulations in when they lend out money, but still, it's pretty stupid imho.
    Last edited by Danan; 12-03-2012 at 11:13 AM.

  14. #12
    I think it's a mistake to say either way would happen, I think such a market would see both and in the end a market strictly regulated by it's consumers i.e. a free market would favor the better of the two, or invent a third.

    The problem is right now we don't have a choice because there's just too much danger in risking your personal assets.
    My personality type: INTJ - please forgive my weaknesses (Not naturally in tune with others feelings; may be insensitive at times, tend to respond to conflict with logic and reason, tend to believe I'm always right, tend to be unwilling or unable to accept blame )

  15. #13
    Quote Originally Posted by hazek View Post
    I think it's a mistake to say either way would happen, I think such a market would see both and in the end a market strictly regulated by it's consumers i.e. a free market would favor the better of the two, or invent a third.

    The problem is right now we don't have a choice because there's just too much danger in risking your personal assets.
    The market can't give rise to legal immunity. The market is completely and wholly separate from any legal or governing entity and, in its purest form, has nothing to do with government. Of course, as we have seen, the government certainly can stick its hands in the market, but not the other way around, so it's impossible for the market to give rise to legal immunity just by market forces alone. The market can only give rise to voluntary actions. Nothing in the legal system is voluntary in principle.
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  16. #14
    Quote Originally Posted by Bohner View Post
    have the company take out loans in order and use that money to pay themselves and then bankrupt the company


    Thoughts?
    In a real free market banks who were stupid enough to loan companies like this money would soon be bankrupt themselves. I have no problem with limited liability. Just make sure you know who you are entering into a contract with, corporation or individual.

  17. #15
    Quote Originally Posted by Bohner View Post
    I was looking on Mises and was surprised that there is even a debate as to whether limited liability should be legal. Limited liability (ie. corporate personhood) is completely incompatible with libertarian philosophy IMO.

    The idea that company's like Bain can buy a company, rip away and sell off all it's assets piece by piece, have the company take out loans in order and use that money to pay themselves and then bankrupt the company, rinse and repeat while taking no personal responsibility for the bankruptcies sounds like crony capitalism at it's finest.

    Most of the problems associated with unlimited liability could easily be negated through liability insurance anyways.

    Thoughts?
    did you notice the contradiction?

    How can a company have personhood but take no responsibility? That's not the problem with either limited liability or corporate personhood, it's double standard and inconsistency, which is incompatible with any law and order.

    But perhaps limited liability was created specifically to prevent insurance companies from exploiting high risks or un-payable debts.

  18. #16
    Quote Originally Posted by Bohner View Post

    The idea that company's like Bain can buy a company, rip away and sell off all it's assets piece by piece, have the company take out loans in order and use that money to pay themselves and then bankrupt the company
    They bought the company. What's wrong with destroying the company you bought yourself?

    If they didn't buy the company, then you must ask who was the stupid board of directors that let them bear debt with no benefits?

    See? It's that simple, either Bain owned the company and it was theirs to destroy, or they did not, and the company's board is responsible for keeping their assets, liabilities and integrity. The idea that Bain somehow did all the bad things and suffered nothing is nonsensical, and anybody who allowed it is probably too stupid to be protected by any law.



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  20. #17

    Not so simple

    Quote Originally Posted by Tpoints View Post
    They bought the company. What's wrong with destroying the company you bought yourself?

    If they didn't buy the company, then you must ask who was the stupid board of directors that let them bear debt with no benefits?

    See? It's that simple, either Bain owned the company and it was theirs to destroy, or they did not, and the company's board is responsible for keeping their assets, liabilities and integrity. The idea that Bain somehow did all the bad things and suffered nothing is nonsensical, and anybody who allowed it is probably too stupid to be protected by any law.
    Not so simple because NOBODY owned it. No real human being ever owned the business itself. It was owned by a fictitious entity. No individual human being was ever responsible for what was done. The corporate business form not only sequesters liability, it also divides ownership from management of the fictitious entity. The result is that managers are transitory (as are the owners, by the way). The result is a tendency for managers to manage in a way that makes the company LOOK good on paper in the short term so they can either flip the corporation or themselves (moving on to another corporate management job on the basis of their "turnaround" of the last corporation).

    Overall the result of the dominance of the government-created corporate business form has been a loss of concern for long-term growth, loyalty to the customer, loyalty to employees, concern for the community, and development of better goods and services. Instead, folks like Bain capital engage in a paper game of accounting tricks and short-term stripping of companies to book unsustainable profits quickly and then move on.

    Henry Ford once counseled businessmen to strive to give consumers MORE for their dollar rather than less. The corporate business form encourages just the opposite.
    The proper concern of society is the preservation of individual freedom; the proper concern of the individual is the harmony of society.

    "Who would be free, themselves must strike the blow." - Byron

    "Who overcomes by force, hath overcome but half his foe." - Milton

  21. #18
    Quote Originally Posted by Acala View Post
    Not so simple because NOBODY owned it. No real human being ever owned the business itself. It was owned by a fictitious entity.
    And who owns the fictious entity? Who derives benefits from the fictitious entity? It can't be nobody.

    No individual human being was ever responsible for what was done. The corporate business form not only sequesters liability, it also divides ownership from management of the fictitious entity.
    Basically what you're saying is give corporations MORE rights and responsibilities, not less. Instead of letting corporations exist as ficititious, ambiguous, or liability free entities, make them only legal to exist IF they are attached to a responsible person (or in short, corporations/companies/businesses can only function if they have an owner).

    The result is that managers are transitory (as are the owners, by the way). The result is a tendency for managers to manage in a way that makes the company LOOK good on paper in the short term so they can either flip the corporation or themselves (moving on to another corporate management job on the basis of their "turnaround" of the last corporation).
    This is solved with the doctrine of "piercing the veil".

    http://en.wikipedia.org/wiki/Piercin...corporate_veil

    While it is possible for people to use shells to sheild their liability, the same way a person can use trusts to protect money they know they cannot, the law is very wary of people who act in bad faith or fraudulently abuse protections and privileges.

    Overall the result of the dominance of the government-created corporate business form has been a loss of concern for long-term growth, loyalty to the customer, loyalty to employees, concern for the community, and development of better goods and services. Instead, folks like Bain capital engage in a paper game of accounting tricks and short-term stripping of companies to book unsustainable profits quickly and then move on.

    Henry Ford once counseled businessmen to strive to give consumers MORE for their dollar rather than less. The corporate business form encourages just the opposite.
    This is not a privilege of either a corporation or LLC, it's the problem inherent with forgiving debts, or allowing irresponsible debts. The alternative is to either force debtors to pay back through use of force, or restrict loans and debts if one suspects the debtor cannot pay back. (in other words, either force gamblers to pay what they bet, or not allow them to bet at all).

  22. #19

    no

    Quote Originally Posted by Tpoints View Post
    This is solved with the doctrine of "piercing the veil".

    http://en.wikipedia.org/wiki/Piercin...corporate_veil

    While it is possible for people to use shells to sheild their liability, the same way a person can use trusts to protect money they know they cannot, the law is very wary of people who act in bad faith or fraudulently abuse protections and privileges.
    Actually, the problem isn't solved by this doctrine. Courts RARELY pierce the corporate veil. In my thirty years of law practice, including a year as a law clerk for a Federal judge when I saw hundreds of lawsuits with corporate defendants, I can't recall a single instance when a court pierced the corporate veil. That would mean plaintiffs would actually get to seek out stock holders personally and that just doesn't happen.
    The proper concern of society is the preservation of individual freedom; the proper concern of the individual is the harmony of society.

    "Who would be free, themselves must strike the blow." - Byron

    "Who overcomes by force, hath overcome but half his foe." - Milton

  23. #20
    Quote Originally Posted by Acala View Post
    Actually, the problem isn't solved by this doctrine. Courts RARELY pierce the corporate veil. In my thirty years of law practice, including a year as a law clerk for a Federal judge when I saw hundreds of lawsuits with corporate defendants, I can't recall a single instance when a court pierced the corporate veil. That would mean plaintiffs would actually get to seek out stock holders personally and that just doesn't happen.
    Do you recall the best example of a case where you believe the veil should be pierced? Is the problem the lack of a better doctrine? Or just the lack of courts using it?

    Also, can't the problem be solved by suing the owner/board directly? I mean, after all, companies cannot act without the string pullers, so what's wrong with suing string pullers? (Let's assume, you are the plaintiff and you've been wronged by a company's actions, and you either know or have no reason to believe to the contrary that the string pullers made the direct decisions)

    The government doesn't seem to have a problem peircing veils or prosecuting criminals if a company committed a crime in any way, is this problem only a problem when plaintiffs are seeking money?
    Last edited by Tpoints; 12-01-2012 at 11:44 PM.

  24. #21
    Quote Originally Posted by Acala View Post
    Not so simple because NOBODY owned it. No real human being ever owned the business itself.
    That's wrong. A group of individuals owned it. People who screech about corporations are, in my imho, saying that people shouldn't be legally allowed to join together for the purpose of engaging in joint business ventures.

  25. #22
    Quote Originally Posted by angelatc View Post
    That's wrong. A group of individuals owned it. People who screech about corporations are, in my imho, saying that people shouldn't be legally allowed to join together for the purpose of engaging in joint business ventures.
    The business itself - land, factories, goods, gross income, contracts - is NOT owned by the individuals. It is owned by the corporation, which is a separate legal entitiy. No living human being has any direct legal interest in the business itself. Individuals DO have an ownership interest in the corporate entity.
    The proper concern of society is the preservation of individual freedom; the proper concern of the individual is the harmony of society.

    "Who would be free, themselves must strike the blow." - Byron

    "Who overcomes by force, hath overcome but half his foe." - Milton

  26. #23
    Quote Originally Posted by Acala View Post
    The business itself - land, factories, goods, gross income, contracts - is NOT owned by the individuals. It is owned by the corporation, which is a separate legal entitiy. No living human being has any direct legal interest in the business itself. Individuals DO have an ownership interest in the corporate entity.
    There is no such thing as a tangible business in that context. Corporations exist to engage in business. Corporations own assets, and shareholders own those assets because they are the owners in the corporation. Corporations are only a set of pre-fab legalities designed to expedite a myriad of routine issues that arise with ownership by multiple individuals.

  27. #24
    Quote Originally Posted by Tpoints View Post
    They bought the company. What's wrong with destroying the company you bought yourself?
    It's more about if you use a corporate person to take out debt, use some of that loan to pay yourself, company goes bankrupt, and the creditors and other people the corporate person screwed over can't get their money back because the corporate person doesn't have it.... YOU DO!!!



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  29. #25
    Quote Originally Posted by Bohner View Post
    It's more about if you use a corporate person to take out debt, use some of that loan to pay yourself, company goes bankrupt, and the creditors and other people the corporate person screwed over can't get their money back because the corporate person doesn't have it.... YOU DO!!!
    Explain to me, how do I "use" anybody, or any entity to "take out debt"?

    Either I am the board and responsible for the debts, or I am not, and I'd have no right to use them. How can a person ever USE a shield to take out debt without the responsibility of his actions? And who would allow it?

    How does Bain, or Romney, or whoever the scapegoat is, "pay himself" without the board saying something? If they ARE the board, then who else do they owe?

    If what you're basically saying is "I use my company to loan money, but because limited liability let's me walk away as long as the company name is empty, and file for bankruptcy", then yes, I agree that limited liability, as well as the concept of bankruptcy protection, is a loophole that allows a person to owe money and never pay it back. this is really no different when a person owes money on a credit card (the credit card, or the person's line of credit, is basically the limited liability shell).

    "Company goes bankrupt", ok, so is it better to not let the company go bankrupt and force the company to pay every penny even if it means they (and their grandchildren) have to becomes slaves for life?

  30. #26
    I find it odd that people these days assume a business is a corporation these days, and claim it has tax benefits. For a small one man operation like myself, Sole Proprietorship offers me more tax protections because I am exempt from most federal taxes. No SSI, No Medicare, No Income Tax. Just capital Gains, which I can avoid by not showing profit.
    CPT Jack. R. T.
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  31. #27
    It depends. I believe the owners of corporations should be 100% liable for all damages they do to people they did not make a contract with. For instance in environmental cases, etc.

    However, I do believe that it's ok to go bankrupt and not be liable with all your private money, as long everyone who gave you a loan signed a contract in which you made it clear that you are not liable with your private wealth, but only with the value of the company itself. Voluntary contractual agreements should be above any law, as long as they don't affect anyone who didn't sign the contract. Obviously in a free market, we would assume that these kinds of contracts are going to be to better terms for companies where the owner is completely liable. But even if not, it's not my problem if anyone wants to lend out his money uncarefully.

    In regards to Bain, I don't really see any problems with it. Nor did Ron Paul, when I remember correctly. If it was indeed more valuable to loot the company's assets than to continue business, then that's exactly what should have been done. In fact, I don't see why anyone even sold his company to bain, if the value of it's assets was higher than what Bain was ready to pay for it. Why didn't they sell the assets themselves and followed the Bain-playbook? Are there any paragraphs in US-bankruptcy law that I don't know that would have only made the initial owner liable, but not Bain? That seems a little odd. The way I see it, nobody lost his rightful property, except a few banks foolish enough to agree to contracts with entities that are not entirely liable. These people should have seen it coming.

  32. #28
    Correct me if I'm wrong, but isn't limited liability designed to protect the shareholders of a company, so that they can't owe more than their investment? I thought the main issue was that government has worked to support management at the expense of the shareholders by requiring those planning a "hostile" takeover to report their intentions to the SEC?

  33. #29
    In very general terms, if you limit liability for one's actions, you lower the costs of somebody taking those actions and will make them more likely to engage in the particular behavior which lead to the liability. In a truely free market, both individuals and companies should not be protected from consequences of their actions.

  34. #30
    The kinds of limited liability that would exist in a free market are not the same as the kinds that exist as government creations.

    I don't think you can say you have freedom if you have some law preventing people from forming corporations, which, by definition, would have to have some kind of corporate personhood.

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