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Thread: Limited liability in a free market society...

  1. #91
    Quote Originally Posted by Acala View Post
    When you buy stock in a corporation, you rely on being insulated from anything the corporation does. You rely on the government-created corporate shield limiting your losses to just the amount you invested.
    Absent the government creating that shield, you would still rely on it.

    Are you saying that investors shouldn't be limited to the amount they invested?

    If I inherited stocks in BP from grandparents, should all the people affected by the oil spill have been able to go after everything I owned?



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  3. #92
    Quote Originally Posted by Acala View Post
    Of course you LIKE being on the side where you are protected from liability. Wait until you have been injured by a corporation with no assets. Professionally, I have to deal with shell corporations all the time. They have nothing in the way of assets or insurance. And it is legal.
    See, I don't care about that. I'm a big fan of carrying your own insurance. Free markets don't work properly unless everybody acts in their own best interests. The concept of "damages" has been carried to such ludicrious extremes that the market acted accordingly.

  4. #93
    Quote Originally Posted by angelatc View Post
    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.
    If you own a share in a corporation, you do NOT own any of the corporate assets. Even corporate bonds don't give you any legal interest in corporate assets.
    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. #94
    Quote Originally Posted by angelatc View Post
    NO they are not the problem, and they absolutely would exist in a free market. In fact, they would be more common, because the SEC would not regulate who was eligible to invest and trade.
    The good news is that the answer to this dispute is easy: eliminate the government-created corporation and let the market decide. If the free market creates corporations like we have today, fine with me. I have stated resons why I don't think that would happen, and we can disagree on that.
    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

  6. #95
    Quote Originally Posted by Acala View Post
    That is fine. The problems begin when the government creates non-liability as the default without consent. Here's one of the reasons why the giant corporations of today could not exist without the government non-liability mandate:

    When you buy stock in a corporation, you rely on being insulated from anything the corporation does. You rely on the government-created corporate shield limiting your losses to just the amount you invested. The stock is easy to buy and easy to sell. No liability passes to you when you buy it and when you sell it, the buyer doesn't need to woory about buying into a lawsuit or any other liability headaches. This creates an anonymous international market where literally hundreds of millions of people who don't know each other and don't know anything about the business can partake of profits without out being responsible for what the corporation does to get those profits.

    In short, because stock holders never have to worry about being responsible for what the corporation does, the corporation can raise vast amounts of money without too many questions being asked. It can then use that vast capital to dominate small business and others in the marketplace.
    It's not the limited liability that enables big business to sometimes crash small businesses, it's mostly because of economies of scale and efficiency benefits due to less overhead. Also, a stock corporation's better ability to fund itself does not mainly come from it's limited liability. I don't know US corporate law, but here in Austria you can start businesses with limited liability at a very low capital threshold, but still not as many people invest in those businesses, as in stock companies. I could be wrong, but I believe you could also invest as an "dormant partner" in pretty much every business form, also small individual enterprises, while also having limited liability.

    But people prefer stocks anyway. And the reason they do that is that large corporations are actually less risky, stocks are easier to sell again at every time, and they are easier to buy. Stocks in general are a great invention of the market place. The first stock companies did not have any government mandate. Ship owners got together and traded shares of their fleets to hedge against drowning ships and piracy.

    If, on the other hand, limited liability had to be negotiated with each party with whom the corporation did business, the owners of the corporation would have to take an interest in what the corporation was doing because the chances are that it would not get the waiver right every time if it got very big. That would limt the market in corporate shares.
    That is largely already the case, at least on a relevant scale.

    And this is only dealing with contracts, not torts. When you buy stock in a corporation now, you don't need to be concerned with being sued by someone when a corporate driver runs over a pedestrian. But no contractual limit of liability can contain accidental injuries caused to others.
    Why would the owner of a firm be responsible for an careless driver? If it's the driver's fault and the owner did not carelessly put him in situations where damage could be expected, it should be the driver who has to pay the compensation, not even the company (and certainly not the owner with his private money).

    Ownership without responsibility is far easier to sell than ownership WITH responsibility. That is the purpose of the corporate business form - to allow people to control vast amounts of other people's money.
    That's by far not the main purpose of the corporate business form.

  7. #96
    Quote Originally Posted by erowe1 View Post
    Absent the government creating that shield, you would still rely on it.

    Are you saying that investors shouldn't be limited to the amount they invested?

    If I inherited stocks in BP from grandparents, should all the people affected by the oil spill have been able to go after everything I owned?
    I am saying that only real human beings should be able to own things and they should bear responsibility for it. People should not be able to create imaginary people to take responsibility for them.

    Why should you be able to take BP profit but not be liable for the damage they do in obtaining that profit?
    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



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  9. #97
    Quote Originally Posted by Acala View Post
    If you own a share in a corporation, you do NOT own any of the corporate assets. Even corporate bonds don't give you any legal interest in corporate assets.
    The corporation owns the assets and you own the corporation (depending on how many shares you own).

    If you own all the shares you essentially own all the assets, because you alone can decide what's going to happen with the assets.

    So that's more of a semantic point.

  10. #98
    Quote Originally Posted by Acala View Post
    Really? I am willing to bet that you don't even know which corporations you have money invested in, let alone whether or not they have insurance. If you have a pension, it is likley invested in a large number of corporations. Do you have any insurance? Insurance companies are among the largest institutional investors in the stock market so you are invested there. Are you invested in mutual funds? I'll bet you can't list their investments.

    The limit on liability allows for widesprfead stock ownership with no oversight by the owners.
    Your bet would be wrong. For the record, I used to work on a trading desk in a mid-sized brokerage firm, so I like to pretend that I'm a little more educated about such matters than the average investor.

    But for the sake of argument, you seriously think that if my pension fund invested in a mutual fund that owned shares in a company that had an accident, then all my assets be fair game for the lawyers. Even though I personally did nothing wrong.

    Yeah, I'm probably not ever going to support that.

  11. #99
    Quote Originally Posted by Danan View Post
    The corporation owns the assets and you own the corporation (depending on how many shares you own).

    If you own all the shares you essentially own all the assets, because you alone can decide what's going to happen with the assets.

    So that's more of a semantic point.
    Yeah, his point there loses me. If the argument is inverted - suppose I get drunk and crash into a school bus - the plaintiffs can't come after the assets of the firms I have shares in. They can, however, take the shares themselves. That makes sense.

  12. #100
    Quote Originally Posted by Acala View Post
    The good news is that the answer to this dispute is easy: eliminate the government-created corporation and let the market decide. If the free market creates corporations like we have today, fine with me. I have stated resons why I don't think that would happen, and we can disagree on that.
    Again, the corporation is nothing more than a legal structure designed to streamline contracts. Government enforces contracts.

    50 different states came up with 50 different versions of the same thing. I don't think it's a conspiracy.

  13. #101
    Quote Originally Posted by Acala View Post
    I am saying that only real human beings should be able to own things and they should bear responsibility for it. People should not be able to create imaginary people to take responsibility for them.

    Why should you be able to take BP profit but not be liable for the damage they do in obtaining that profit?
    BP had insurance, the value of the investment was reduced - settlements came out of his part of the profit. There wasn't even any malice. He did nothing to cause the accident. His personal assets should not be on the table.

  14. #102
    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.

  15. #103
    Quote Originally Posted by Steven Douglas View Post
    Good post. On this issue there are two things I would change, the first being a ZERO CONFLATION law. Corporate personhood, as it were, is never, ever to be confused with individual personhood, despite the fact that some rights, powers, privileges, etc., may be common to both. So to begin with:

    1) Two entirely separate sets of laws: one for corporations, another for free and natural individuals. And ne'er the twain shall be conflated. You can NEVER have one law that applies to both. In such a case, there must be two separate laws, which would eliminate even the need for disambiguation.
    We already have that. For example, SCOTUS has ruled that corporations can't donate directly to political campaigns. Corporations don't have the same right to privacy as individuals do. The legal threshold of justifying search and seizure of corporate property is much, much lower than it is for individuals. Taxation is different, licensing and reporting requirements are different....it goes on and on and on.

  16. #104
    Quote Originally Posted by Danan View Post
    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.
    It's much the same here. The corporate structure is such that a bankruptcy can flow relatively seamlessly through the system in most instances. Creditors do indeed fight over the assets, but unless the Obama exception comes into play, people generally know where they fall in the priority line.

    Well, I don't think that anybody goes into business with the expectation that they will fail. Here in America, we don't have debtors prisons, and it's probably best for the system to flush out the bad debt quickly and move along.



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  18. #105
    Now that I think about it, if we get rid of limited liability, why should the corporation be held responsible for the actions of the employees?

    If a delivery driver has an accident, why should the company be held responsible for his actions, just because he happened to be driving one of their trucks? Why not sue him personally, and let the corporation off the hook?

  19. #106
    Quote Originally Posted by angelatc View Post
    Now that I think about it, if we get rid of limited liability, why should the corporation be held responsible for the actions of the employees?
    Even with LL, a corporation can STILL be held accountable for the actions of it's employees. It has more to do with the ability of the shareholders to screw over the people the corporate person owes money to during bankruptcy.

    Quote Originally Posted by angelatc View Post
    If a delivery driver has an accident, why should the company be held responsible for his actions, just because he happened to be driving one of their trucks? Why not sue him personally, and let the corporation off the hook?
    The courts determine whether or not the corporation bears any responsibility. This has nothing to do with LL unless it causes the corporation to go bankrupt.

  20. #107
    Quote Originally Posted by angelatc View Post
    Now that I think about it, if we get rid of limited liability, why should the corporation be held responsible for the actions of the employees?

    If a delivery driver has an accident, why should the company be held responsible for his actions, just because he happened to be driving one of their trucks? Why not sue him personally, and let the corporation off the hook?
    I agree. Unless the employer was the proximate cause of the harm, the employer should not have to pay. But a court-made legal doctrine called respondeat superior holds employers liable for the acts of employees while on company business. But that doesn't mean you CAN'T sue the employee. Nobody does because they typically don't have any money.
    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. #108
    Angelatc's argument about insurance is a good one and deserves more comment.

    If the corporation has insurance, the current shareholders are paying for it and, therefore, paying for any damage that is covered by that insurance even though they are not directly liable. Of course not all corporations carry insurance and not all injuries are covered by insurance. But there is another problem. I'll give an example based on the real world.

    Publicly owned Corporation X operates a missile factory. It has been operating since 1985. From 1985 to 1995 some of its employees, under direction from the plant manager, dumped spent solvents into a French drain out in the back of the facility rather than paying to have the solvent recycled or properly incinerated. During that time period, the shareholders of Corporation X enjoyed slightly increased profits due to the short cut taken in solvent disposal. But they also had a slightly decreased profit due to paying premiums on a Comprehensive General Liability (CGL) insurance policy.

    Now suppose the solvent entered the aquifer and, over a period of ten years, migrated a few hundred yards where it crossed a property boundary and contaminated a drinking water well owned by a neighbor, making it unfit for use. It is now 2005. The neighbor comes to Corporation X and says "You need to pay me for the damage you have caused me." Corporation X says "Let's tender the claim to our insurance carrier!"

    If the insurance carrier pays, then everything is hunky dory. But the insurance carrier refers Corporation X to the absolute pollution exclusion that has been contained in virtually every CGL policy in the USA since 1985. (Any corporation you own stock in has no pollution coverage unless they have purchased, potentially at great expense, additional coverage. Chances are they have not.)

    So, Corporation X, after wasting a bunch of money consulting its lawyers, says to the neighbor "Fine, here's a bunch of money." Neighbor goes away satisfied (only because Corporation X had assets), but who paid for the damage? Corporate stock is traded freely and rapidly. After the passage of twenty years, the stock holders who gained by the dumping in 1985 are NOT the same as the stockholders who have to pay the judgement in 2005. As a result of the corporate shield, even when the corporation has assets and doesn't just tell the victim to pound it, the WRONG owners pay.

    And this is not some fanciful made-up scenario. It happens all the time. If there is any significant gap in time between the corporation's bad conduct and the payment of compensation for the bad conduct, many or even most of the people who benefitted from the bad conduct are gone with their profits leaving latecomers who did not benefit to pay the damages. This is a result of the government-created liability shield.
    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

  22. #109
    Quote Originally Posted by Acala View Post
    Angelatc's argument about insurance is a good one and deserves more comment.

    If the corporation has insurance, the current shareholders are paying for it and, therefore, paying for any damage that is covered by that insurance even though they are not directly liable. Of course not all corporations carry insurance and not all injuries are covered by insurance. But there is another problem. I'll give an example based on the real world.

    Publicly owned Corporation X operates a missile factory. It has been operating since 1985. From 1985 to 1995 some of its employees, under direction from the plant manager, dumped spent solvents into a French drain out in the back of the facility rather than paying to have the solvent recycled or properly incinerated. During that time period, the shareholders of Corporation X enjoyed slightly increased profits due to the short cut taken in solvent disposal. But they also had a slightly decreased profit due to paying premiums on a Comprehensive General Liability (CGL) insurance policy.

    Now suppose the solvent entered the aquifer and, over a period of ten years, migrated a few hundred yards where it crossed a property boundary and contaminated a drinking water well owned by a neighbor, making it unfit for use. It is now 2005. The neighbor comes to Corporation X and says "You need to pay me for the damage you have caused me." Corporation X says "Let's tender the claim to our insurance carrier!"

    If the insurance carrier pays, then everything is hunky dory. But the insurance carrier refers Corporation X to the absolute pollution exclusion that has been contained in virtually every CGL policy in the USA since 1985. (Any corporation you own stock in has no pollution coverage unless they have purchased, potentially at great expense, additional coverage. Chances are they have not.)

    So, Corporation X, after wasting a bunch of money consulting its lawyers, says to the neighbor "Fine, here's a bunch of money." Neighbor goes away satisfied (only because Corporation X had assets), but who paid for the damage? Corporate stock is traded freely and rapidly. After the passage of twenty years, the stock holders who gained by the dumping in 1985 are NOT the same as the stockholders who have to pay the judgement in 2005. As a result of the corporate shield, even when the corporation has assets and doesn't just tell the victim to pound it, the WRONG owners pay.

    And this is not some fanciful made-up scenario. It happens all the time. If there is any significant gap in time between the corporation's bad conduct and the payment of compensation for the bad conduct, many or even most of the people who benefitted from the bad conduct are gone with their profits leaving latecomers who did not benefit to pay the damages. This is a result of the government-created liability shield.
    I agree... I believe the original shareholders should be the ones who are primarily liable for the damages. If you kill someone in your own house, then you sell the house to me... It shouldn't be me who goes away for murder just because I now own the house.

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