Limited liability in a free market society...

[Bohner]

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?

[Steven Douglas]

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.

[thoughtomator]

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

[Acala]

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.

[hazek]

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.

[cubical]

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.

[Tpoints]

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.

[Jordan]

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

Elaborate.

[Tpoints]

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.

[Acala]

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.