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This is why limited liability is a terrible idea, just another way to privatize the gains and socialize the losses. When you buy a stake in a corporation(espec

by wz1000 7y ago

This is why limited liability is a terrible idea, just another way to privatize the gains and socialize the losses. When you buy a stake in a corporation(especially one that comes with voting rights), and the corporation goes on to cause damages to life, property, the environment etc, you should be held personally liable in proportion with your share(or voting share). I can see the argument for limited liability in case of debts: the issuer of the debt has the opportunity to do due diligence and take the risk of bankruptcy into account. But in the case of damages, I don't see how limited liability can ever be justified.

mars4rp 7y ago
Let's hold the officers of a company liable first. Then go after shareholders.
- luckylion 7y ago
  Why not both? The management acts on behalf of the shareholders. If they break the law, go after the officers with criminal charges, and make the shareholders liable financially. It'll make management less short-term/risk-loving and shareholders will pick their management much more carefully.
  - _pmf_ 7y ago
    > go after the officers with criminal charges, and make the shareholders liable financially Even if the officers serve a prison term and forfeit all personal fortune, companies will still put them on some comfortable position (pre-bribing other officers as a side effect) after they get out.
pjc50 7y ago
We've had limited liability for centuries, and it's completely critical for getting people to invest in businesses. Without it, nobody dares open anything larger than a lemonade stand, unless they're already extremely wealthy.
- lmm 7y ago
  The Islamic world operated on partnerships rather than corporations up until quite recently. Some important parts of society (GPs, law firms, auditors until a few years ago) still do.
  - sureshv 7y ago
    Most law firms are likely LLP's or PC's which act as a liability shield.
- pmyteh 7y ago
  For a handful of organisations, yes - though the adoption of limited liability structures en masse dates only to the late 19th Century, at least in England. To put it another way, we managed to run the industrial revolution with pervasive unlimited liability, so it seems likely that 'completely critical' is substantively overstating it.
  - roenxi 7y ago
    We can split hairs about what adjective applies, but the point is that limited liability is a fantastic idea and a big positive in letting people get involved in a business. Limited liability makes it substantially easier for small-time investors to get involved in economic windfalls. We should be striving to equalise access by both the poor and the wealthy to making money. Limited liability makes it safe for little investors (the people who can't afford a personal lawyer and accountant) to invest in a company. Take away the limits, and it is no longer safe for small investors to invest in large companies. A big scandal and small shareholders could be wiped out. People who, realistically, had no actual control over the corporation and who were just trying to tap in to the wealth creation engines of the broader economy. Removing limited liability provisions (1) doesn't target the executives, who are decision makers and (2) tips the field towards an "only the wealthy can afford the risk of investing in stock" equilibrium - even if just a little bit. LLC isn't a serious mechanism to "privatise gains, socialise losses". That is achieved when the US government sweeps in and gives large cash infusions to incompetent bankers so they can pretend that bankruptcy is a mysterious phenomenon that threatens consumers rather than being a realisation of the incredible damage that they are doing with their own bad decisions. You can easily have both well remediated minesites and LLC laws in the same story. Just beef the regulation up a little.
atoav 7y ago
The only way to prevent the socialization of losses, are good laws and regulations. Profiting by draining public resources abd values is a special kind of evil.
Arnt 7y ago
Limited liability is crucial to your pension savings. Without that, you would either have to have all your savings in assets that cannot lose value, or you would risk having all of your savings wiped out by losses in any single asset. Considering that, do you still think it's a terrible idea?
- wz1000 7y ago
  Yes. You can get your investments insured, so that the risk is priced in. With limited liability, it is a viable strategy to invest in things that have a likelihood of a mild reward, but a risk of catastrophic failure that hurts and damages a large number of people(the proverbial pennies in front of a steamroller). And it is society that bears the costs for such failures. However, insurance for such a project would be very expensive or impossible to get. Also, with pension funds, you generally don't have the power to vote. In the case of an uninsured pension-like fund, I prefer it that the fund manager/whoever holds the voting power be the one that is primarily held accountable. If institution managing the fund is wiped out and the liability still remains, then we can move on to the the shareholders without voting rights.
  - Arnt 7y ago
    You're suggesting that insurers would provide limited liability without having having a stop-loss mechanism themselves. My guess is that insurers would look for ways to make their risk assessable and stop the potential losses by insuring you only against assessable risks. They'd insure you against a list of types of events, and nuclear war, force majeure, Nick Leeson and Knight Capital wouldn't be on the list.
    - wz1000 7y ago
      Society does provide limited liability, without having a stop loss mechanism. You are defending a system where the cost of catastrophe falls on everybody but the ones who encouraged the dangerous behaviour in the first place.
eli_gottlieb 7y ago
Easier to just restrict limited liability to enterprises that operate as worker cooperatives or commons trusts. If investors want to limit their liability, that should mean giving other stakeholders the defining voice in corporate governance.
ip26 7y ago
It doesn't really seem like that would work out well. Do I get a week in jail because some of my retirement is in VFINX?

by wz1000 7y ago

mars4rp 7y ago

Let's hold the officers of a company liable first. Then go after shareholders.

luckylion 7y ago
Why not both? The management acts on behalf of the shareholders. If they break the law, go after the officers with criminal charges, and make the shareholders liable financially. It'll make management less short-term/risk-loving and shareholders will pick their management much more carefully.
- _pmf_ 7y ago
  > go after the officers with criminal charges, and make the shareholders liable financially Even if the officers serve a prison term and forfeit all personal fortune, companies will still put them on some comfortable position (pre-bribing other officers as a side effect) after they get out.

pjc50 7y ago

We've had limited liability for centuries, and it's completely critical for getting people to invest in businesses. Without it, nobody dares open anything larger than a lemonade stand, unless they're already extremely wealthy.

lmm 7y ago
The Islamic world operated on partnerships rather than corporations up until quite recently. Some important parts of society (GPs, law firms, auditors until a few years ago) still do.
- sureshv 7y ago
  Most law firms are likely LLP's or PC's which act as a liability shield.
pmyteh 7y ago
For a handful of organisations, yes - though the adoption of limited liability structures en masse dates only to the late 19th Century, at least in England. To put it another way, we managed to run the industrial revolution with pervasive unlimited liability, so it seems likely that 'completely critical' is substantively overstating it.
- roenxi 7y ago
  We can split hairs about what adjective applies, but the point is that limited liability is a fantastic idea and a big positive in letting people get involved in a business. Limited liability makes it substantially easier for small-time investors to get involved in economic windfalls. We should be striving to equalise access by both the poor and the wealthy to making money. Limited liability makes it safe for little investors (the people who can't afford a personal lawyer and accountant) to invest in a company. Take away the limits, and it is no longer safe for small investors to invest in large companies. A big scandal and small shareholders could be wiped out. People who, realistically, had no actual control over the corporation and who were just trying to tap in to the wealth creation engines of the broader economy. Removing limited liability provisions (1) doesn't target the executives, who are decision makers and (2) tips the field towards an "only the wealthy can afford the risk of investing in stock" equilibrium - even if just a little bit. LLC isn't a serious mechanism to "privatise gains, socialise losses". That is achieved when the US government sweeps in and gives large cash infusions to incompetent bankers so they can pretend that bankruptcy is a mysterious phenomenon that threatens consumers rather than being a realisation of the incredible damage that they are doing with their own bad decisions. You can easily have both well remediated minesites and LLC laws in the same story. Just beef the regulation up a little.

atoav 7y ago

The only way to prevent the socialization of losses, are good laws and regulations. Profiting by draining public resources abd values is a special kind of evil.

Arnt 7y ago

Limited liability is crucial to your pension savings. Without that, you would either have to have all your savings in assets that cannot lose value, or you would risk having all of your savings wiped out by losses in any single asset. Considering that, do you still think it's a terrible idea?

wz1000 7y ago
Yes. You can get your investments insured, so that the risk is priced in. With limited liability, it is a viable strategy to invest in things that have a likelihood of a mild reward, but a risk of catastrophic failure that hurts and damages a large number of people(the proverbial pennies in front of a steamroller). And it is society that bears the costs for such failures. However, insurance for such a project would be very expensive or impossible to get. Also, with pension funds, you generally don't have the power to vote. In the case of an uninsured pension-like fund, I prefer it that the fund manager/whoever holds the voting power be the one that is primarily held accountable. If institution managing the fund is wiped out and the liability still remains, then we can move on to the the shareholders without voting rights.
- Arnt 7y ago
  You're suggesting that insurers would provide limited liability without having having a stop-loss mechanism themselves. My guess is that insurers would look for ways to make their risk assessable and stop the potential losses by insuring you only against assessable risks. They'd insure you against a list of types of events, and nuclear war, force majeure, Nick Leeson and Knight Capital wouldn't be on the list.
  - wz1000 7y ago
    Society does provide limited liability, without having a stop loss mechanism. You are defending a system where the cost of catastrophe falls on everybody but the ones who encouraged the dangerous behaviour in the first place.

eli_gottlieb 7y ago

Easier to just restrict limited liability to enterprises that operate as worker cooperatives or commons trusts. If investors want to limit their liability, that should mean giving other stakeholders the defining voice in corporate governance.

ip26 7y ago

It doesn't really seem like that would work out well. Do I get a week in jail because some of my retirement is in VFINX?