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Limited Liability Is Causing Unlimited Harm

93 points by hhs 7y ago

deleted 7y ago
[deleted]
LatteLazy 7y ago
The article conflates a lot of things that are not connected to limited liability (unsafe airplanes and pollution!?). And it misunderstands limited and zero liability, pretending the former is the later? Then it fails to understand liability all together. I understand why there is a human need to hold someone accountable for everything. But that's not realistically possible. Trying or pretending it is leads to very weird results (like the article) There are so many failures here, I'd go as far as to call it "not even wrong". It's just a mess of accusations and (incorrect) assertions. The cynic in me wonders if its intended to just appeal to people's prejudices. But maybe I'm just cynical...
- pmiller2 7y ago
  You are misreading or misrepresenting what the article says. It is arguing that “limited liability” for shareholders de facto means “zero liability” for anything the company does. While that’s not strictly true, a shareholder in a public company indeed suffers no consequences for said company’s actions other than potential loss of their initial investment. The author is saying this is insufficient, as it leads to companies taking legal risks like building unsafe airplanes and causing pollution. Does this not reflect the world outside your window? When I can put money into a company, then sit on it over a period of years and just watch it grow, what’s my incentive to prevent the company from doing bad things? When I can do that for hundreds of companies at a time, in the form of an index fund or ETF, and be virtually assured my money will grow over the long term, why would I do anything to prevent the company from taking risks? TL;DR: “Zero liability” is not zero, it’s just so small it doesn’t discourage bad behavior.
  - metalliqaz 7y ago
    "taking risks" isn't even strong enough. "doing harm." a capitalist system is a system by and for capital, and if capital isn't held to account for harm, it will never do anything to prevent that harm (the harm is almost always inflicted on those without capital). in fact, there is incentive to do more harm if it is profitable.
  - voxic11 7y ago
    But limited liability comes into play in none of his examples which is why he appears to be conflating issues. All of the examples he gives are of companies which had enough money to cover their liabilities (none of them went bankrupt due to the example misconduct). So it appears that the issue is with liability in general, not limited liability in specific.
    - pmiller2 7y ago
      Limited liability is what makes people want to continue investing in Boeing after they made a plane prone to crashing, and Exxon after they leak millions of gallons of oil into the ocean. You can, and I think do, argue that those companies should have more liability for those things, perhaps in the form of prison sentences for negligence, or, at least, increased fines, but limited liability is what ultimately keeps the company going for the long term, in spite of what they’ve done.
      - voxic11 7y ago
        But Boeing and Exxon both are still around and still profitable and did not need to fall back on the principle of limited liability to protect their shareholders. So if anything that would indicate to me as a shareholder that both companies are not that bad at quantifying risk. Limited liability makes it less risky to invest in smaller, less established companies. Those with well established histories like Boeing and Exxon seem like they would actually be helped by eliminating limited liability as they have long histories of not needing to use it.
        7y ago
- js8 7y ago
  > I understand why there is a human need to hold someone accountable for everything You're right, there has to be a balance between punishment and forgiveness.
- jdmichal 7y ago
  The basic premise seems simple and not-wrong enough: External costs are not borne by shareholders, so they are not priced into the market. I mean, that's kind of the definition of externality. Everything else is hot garbage, though. I don't understand why the shareholders are being dragged into this at all... Suddenly making millions of people partially liable for the acts of the company would result in nothing other than panicked crashes. Not to mention things like index funds suddenly becoming untenable -- imagine liability to the entire stock market?! And that to me is enough to confirm that this is barking up the wrong tree, because index funds are one of the best things to happen to the investment market for the average person. The answer is to internalize the costs to the corporation, so that the market can properly reflect them just like every other cost. This works fine, and doesn't destroy the very nature of the market or shareholding. EDIT: I mean this broadly. Not just carbon taxes and other classic examples of externalities. But also things like proper fines against damages discovered in court. Currently fines seem flatter than they should be. They're often enough to completely shutter a small company, but when scaled up often don't even negate the potential profits for megacorps.
- eesmith 7y ago
  I don't see that conflation nor that misunderstanding. > not connected to limited liability [like] pollution I'm pretty sure that's in reference to things like https://indyweek.com/news/legal-maneuver-absolve-duke-energy-responsibility-coal-ash-dumps/ https://indyweek.com/news/legal-maneuver-absolve-duke-energy... where a company offloads its pollution liabilities to an under-capitalized LLC: ] In most cases, the landowner would be legally liable for such damages. But the owner of the abandoned brick mine is not Duke Energy; it's Green Meadow LLC, a new corporation led by the president of Charah Inc., a Kentucky ash disposal company contracting with Duke on the coal ash project. ] Once Charah takes possession of the ash, Duke may not be responsible for the waste, legal experts say, a contingency that may be part of Duke's private contract with Charah. ] And if Green Meadow or Charah does not have the money to pay damages emanating from a lawsuit, then county governments and the state not Duke Energy may be ultimately forced to pay, legal experts say. > misunderstands limited and zero liability I find it hard to believe that "Katharina Pistor, Professor of Comparative Law at Columbia Law School, [and] author of The Code of Capital: How the Law Creates Wealth and Inequality." understands the topic worse than an HN commenter. > pretending the former is the later I don't see that. For example, Pistor writes "The corporate entity itself might face liability, perhaps even bankruptcy, but the shareholders can walk away from the wreckage, profits in hand." That distinguishes between limited and zero liability. A quick look (following the links) finds several papers related to piercing the corporate veil. Eg https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1517428&rec=1&srcabs=1871173&pos=2 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1517428&... describes how the inability to pierce the corporate veil may "improperly shield irresponsible business owners."
  - LatteLazy 7y ago
    Just FYI, on the Green Meadow point, companies are already required to show that when they transfer liabilities like this, the entity transfered to is "properly funded". People can argue over what level of funding is required, but there are funding requirements. The article itself even mentions higher funding requirements when the EPA classes waste as a Hazardous etc. If that we're not the case, llcs would be a sort of crazy loophole to dump problems and walk away. But it's not. We already have a whole web of regulations, most based around requiring insurance and regulating insurer risk profiles... In answer to you the "profits in hands" quote, I think that's misrepresentation because its incredibly rare. How many times does someone invest in a company, magically get more than their investment back in cash and then the company goes bankrupt and have it all happen so quickly that it's fraud rather than just 10 years of success and failure? The article doesn't give even 1 example of that. Also to take advantage of limited liability a dividend needs to be properly declared and paid. Companies that realise they have major liabilities can't do that. That's why they don't. So the article pretends you can just wait till pay day, liquidate everything and throw the money over the fence and you get away with it.
pjc50 7y ago
The shareholders are not usually the ones making the decisions, the managers are. Rather than going after Joe Average's pension when he put $100 in an index fund that turned out to own Dow Chemical, go after the managers. Perhaps a rule that anyone in a decisionmaking position who earned over $1m total comp last year is partially liable for fines against the company? In the UK a few decades ago there was a huge fiasco when Lloyds, one of the few remaining places whose investors have unlimited liability because the company dates from 1686, dumped liabilities relating to asbestos onto them. https://www.theguardian.com/money/2000/nov/04/business.personalfinancenews1 https://www.theguardian.com/money/2000/nov/04/business.perso... Was Sir William Jaffray responsible, in the 1980s, for the actions of those marketing and installing asbestos in the 1970s? He ended up liable for it anyway.
- wffurr 7y ago
  Like Sarbanes-Oxley but for more than just financial certification.
- danpalmer 7y ago
  > Perhaps a rule that anyone in a decisionmaking position who earned over $1m total comp last year is partially liable for fines against the company? In UK banking now there are regulations that manager above a certain level are legally liable for decisions made below them. This means in the worst case, a director level manager can go to prison for a decision they or one of their subordinates makes. If it's a subordinate, I believe it is their responsibility to prove that the information was hidden from them, i.e. they are required to know what's going on below them as far as they reasonably can.
- techsupporter 7y ago
  > ... Lloyds, one of the few remaining places whose investors have unlimited liability because the company dates from 1686... It’s worth noting that even Lloyd’s has been changing as a result of unlimited liability being, well, a liability. New private individual investors with unlimited liability (called “Names” in Lloyd’s parlance) haven’t been admitted in some years and corporate entities have been admitted to join with limited liability for almost thirty years. As it stands now, something like only 3% of Lloyd’s insurance capacity is provided by unlimited liability Names and that’s expected to hit 0% before 2030.
vorpalhex 7y ago
I fully support this. Next time an Exxon spill leaks oil into the ocean, we should gather up our teachers and mail carriers whose pensions are invested in oil and put them in jail. That'll really show those polluters! Sarcasm aside, this strikes me as the kind of vague solution waving that sounds great on paper and has no connection to reality.
- pmiller2 7y ago
  The correct implementation of this is to apply more personal liability to executives and directors making the decisions that lead to oil getting dumped in the ocean. When decision makers go to prison as a result of negligently bad decisions, they will not be as negligent as often. Is that specific enough?
  - pjc50 7y ago
    Yes. But that's nothing to do with the normal meaning of limited liability.
    - pmiller2 7y ago
      Yes, it does. Limited liability protects directors of a company as well as shareholders.
  - Noos 7y ago
    But we already have the idea of piercing the corporate veil though. I'm not sure needing to change the structure of limited liability matters as much as formalizing and unifying that concept.
    - pmiller2 7y ago
      Either way, what’s needed is to increase the level of liability on those that control the actions of corporations. What you call it doesn’t matter, the effect is the same.
- pessimizer 7y ago
baryphonic 7y ago
I was not surprised at the low quality of this piece, but was shocked that the author is a law professor, and at Columbia no less. The professor should know better. Limited legal liability is not the essential aspect of incorporation, legal personhood is. The ability to sue and be sued as its own entity is the one unique aspect of the corporation that distinguishes it from what came before. Limited liability, on the other hand, is commonly used in contract law. The entire insurance industry is based on this idea. It even has a respectable, legalese name: indemnity. In a world of shareholders having unlimited liability, shareholders would buy insurance against any loss beyond the cost bases of their investments, or they'd require the corporate entity - again, still a legal person - to indemnify them for any losses beyond the investment, or maybe the clever lawyers - including the professor's own students - would use indemnity to make even more innovative agreements and tools. By creating out of whole cloth a market for insurance that heretofore has not existed, we'd probably see even more of a culture of haves vs have nots in the investment world. Those with more money and prestige would be able to buy better protection; ordinary people would be less well-protected. In the end, we'd have a less equal system, more uncertainty and no change in the behavior of corporations with respect to liabilities of their shareholders.
- Arnt 7y ago
  I don't really see how it would be better. The corporations that I've heard described as evil most often don't seem to be affected at all, at first thought at least. Some because they're profitable, others were at risk around 2008-2010, but were kept from bankruptcy (with or without shareholder liability) because of systemic risk. Could you explain what problem this would solve?
- hogFeast 7y ago
  It is interesting (or worrying) to think about why someone like this writes an article like this. It seems kind of self-evident that limited liability gives people the opportunity to sue companies, and her main issue is apparently with the quantum of judgement against companies (left unsaid is why they would be larger against individuals or whether employees are able to shoulder those legal liabilities). But this is where we are now...a sizeable proportion that think that everything companies do is innately evil (these people often have tidy public sector jobs that are paid for by these companies). It is very weird...it is like life is a Disney film with evil rich people and virtuous poor people.
kraigie 7y ago
If companies are persons. Should we arrest them? Tax them like individuals?
- mellavora 7y ago
  or subject them to the death penalty in the case of gross crimes against humanity?
- tathougies 7y ago
  Corporations are taxed like individuals. The individual tax is the tax borne by the entirety of shareholders of the corporation as individuals. Corporations are then taxed again. They are doubly taxed entities unlike a passthrough LLC or sole proprietorship
kube-system 7y ago
When a pharmaceutical company makes some opioids that kill people, it's my mom and her 401(k) account that should be liable? And this will reduce inequality? Not sure I'm buying that one.
- Geeek 7y ago
  I mean, she profited when the company sold all the opioids that caused the stock to go up, why should she be off the hook on the negative end?
  - kube-system 7y ago
    She didn't realize any profit if she still holds the stock. But that technicality aside, we already do hold her liable, but only to the amount of her investment. The point of my comment is, why would increasing her liability (from the amount of her investment, to everything she owns) decrease inequality?
    - flyingfences 7y ago
      > we already do hold her liable, but only to the amount of her investment That's the thing, though - we don't. Her liability is limited to effectively zero. Her investment may lose value, but that is another risk entirely. If the company in which she is invested goes bankrupt with a billion dollar debt, she isn't on the hook for a penny of it.
- bpt3 7y ago
  Her 401(k) should definitely be liable, in that her investment in a company that arguably shouldn't be allowed to exist is lost. She should not be personally liable as she had no direct part in the decision to make opioids that kill people.
- gmiller123456 7y ago
  >my mom and her 401(k) account that should be liable? That shows one of the really big problems with 401k's, you pretty much get no say in what companies you invest in. Worse, you usually can't even get information about what companies you invest in.
deleted 7y ago
[deleted]
bpt3 7y ago
The lack of regulation and enforcement by government agencies and a disinterested or powerless consumer base seems to be the root cause of almost all her issues, not limited liability. Because the repercussions of catastrophic events aren't enough to bankrupt companies like Exxon, Dow, and BP, limited liability is irrelevant in those cases. In my opinion, a more coherent argument for her position (which I don't agree with at all to be clear) would be to find examples of companies that did go bankrupt after some negative event they caused and highlight how the limited liability of the corporation shielded bad actors from punishment they arguably deserved.
lanternslight 7y ago
We need a corporate death penalty: when a corporation has been convicted of murder out other acts, the corporation should be dissolved, the assets sold off, and the proceeds distributed to the victims families. As it stands now, the execs get their gold, the corporations get a slap in the wrist, and then it's business as usual.
- bpt3 7y ago
  > We need a corporate death penalty: when a corporation has been convicted of murder out other acts, the corporation should be dissolved, the assets sold off, and the proceeds distributed to the victims families. That's what is supposed to happen through the legal process, but isn't currently as you pointed out. We don't need new processes, we just need to use the ones we have as they should be.
- AnthonyMouse 7y ago
  A corporation's assets are typically worth more as an operating business than as a disjoint collection of vehicles and land, so the buyer would tend to be someone who wants to continue operating the business and would buy the whole thing. In many cases the value of the business would also exceed the liability, in which case the difference should presumably go to the original shareholders. They might then want to use that money to invest in the new business. That is effectively what already happens. You're basically just asking for the amount of liability for particular behavior to be larger than it is, and then in more cases it would cause the corporation to go bankrupt and have to raise new capital in order to continue operating, because the result would be the same.
pavon 7y ago
> Markets are supposed to measure and allocate risk, yet shares in companies that pollute, peddle addictive pain killers, and build unsafe airplanes are doing just fine. This has nothing to with limited liability shielding investors, and everything to do with the companies themselves not being adequately punished for their wrong-doing. The market is accurately measuring the risk of these activities and determining they are low risk, because their consequences are lower than their gains. If you fix that, I guarantee you that the stock prices will follow. Now investors will still end up making some profit of off harmful behavior of companies before that behavior comes to light, and thus the market reacts to it, but I don't know that investors should be punished in that situation. It is at most negligence, but it is hard to blame them for lack of due-diligence when regulators and law enforcement, whose job it is find wrongdoing, hadn't yet discovered it either. Leave the liability on those who performed, agreed to, or at least had knowledge of the wrongdoing.
- unishark 7y ago
  I think it has more to do with one's definition of "doing fine". Boeing lost money. They can continue as a going concern since their 150k employees have a ton of other things going on that investors expect to make money, aside from one particular flawed product. It seems wrong to me to require punishment to scale with the size of the company, as opposed to the size of the "wrong doing". If Boeing has ten other subsidiaries doing defense contracts, satellites and whatever else, that should require them to be fined ten times more?
mnm1 7y ago
I'd rather see criminal penalties for execs who commit such actions. A good example is Boeing's CEO. He's the one whose policies led to the unnecessary death of 300+. He knew what he was doing and instead of a golden parachute, should be spending life in jail or even getting the death penalty as the number of people he murdered is enormous, eclipsing most serial killers. Have real accountability and real consequences and what happened will not happen again. Instead, he gets millions and a nice retirement for murdering hundreds. He's living the American dream: making profit off other people's misery. The same can be applied to other disasters that could have been avoided if the executives weren't negligent, uncaring, greedy assholes. But let's face it. Justice like this is a fantasy that will never happen because as a society we believe corporations can do nothing wrong. Or maybe it's just Washington that makes it seem that way. The distinction is almost irrelevant since Washington is supposed to represent our people.
dieselerator 7y ago
It occurs to me I should consider the following. The author is a lawyer arguing to expand the field of defendants in a lawsuit. Most of those defendants would be likely to settle rather than be dragged into court. Who would be the beneficiary in that scenario? (I am not a lawyer.)

93 points by hhs 7y ago

deleted 7y ago

[deleted]

The article conflates a lot of things that are not connected to limited liability (unsafe airplanes and pollution!?). And it misunderstands limited and zero liability, pretending the former is the later? Then it fails to understand liability all together. I understand why there is a human need to hold someone accountable for everything. But that's not realistically possible. Trying or pretending it is leads to very weird results (like the article) There are so many failures here, I'd go as far as to call it "not even wrong". It's just a mess of accusations and (incorrect) assertions. The cynic in me wonders if its intended to just appeal to people's prejudices. But maybe I'm just cynical...

pmiller2 7y ago
You are misreading or misrepresenting what the article says. It is arguing that “limited liability” for shareholders de facto means “zero liability” for anything the company does. While that’s not strictly true, a shareholder in a public company indeed suffers no consequences for said company’s actions other than potential loss of their initial investment. The author is saying this is insufficient, as it leads to companies taking legal risks like building unsafe airplanes and causing pollution. Does this not reflect the world outside your window? When I can put money into a company, then sit on it over a period of years and just watch it grow, what’s my incentive to prevent the company from doing bad things? When I can do that for hundreds of companies at a time, in the form of an index fund or ETF, and be virtually assured my money will grow over the long term, why would I do anything to prevent the company from taking risks? TL;DR: “Zero liability” is not zero, it’s just so small it doesn’t discourage bad behavior.
- metalliqaz 7y ago
  "taking risks" isn't even strong enough. "doing harm." a capitalist system is a system by and for capital, and if capital isn't held to account for harm, it will never do anything to prevent that harm (the harm is almost always inflicted on those without capital). in fact, there is incentive to do more harm if it is profitable.
- voxic11 7y ago
  But limited liability comes into play in none of his examples which is why he appears to be conflating issues. All of the examples he gives are of companies which had enough money to cover their liabilities (none of them went bankrupt due to the example misconduct). So it appears that the issue is with liability in general, not limited liability in specific.
  - pmiller2 7y ago
    Limited liability is what makes people want to continue investing in Boeing after they made a plane prone to crashing, and Exxon after they leak millions of gallons of oil into the ocean. You can, and I think do, argue that those companies should have more liability for those things, perhaps in the form of prison sentences for negligence, or, at least, increased fines, but limited liability is what ultimately keeps the company going for the long term, in spite of what they’ve done.
    - voxic11 7y ago
      But Boeing and Exxon both are still around and still profitable and did not need to fall back on the principle of limited liability to protect their shareholders. So if anything that would indicate to me as a shareholder that both companies are not that bad at quantifying risk. Limited liability makes it less risky to invest in smaller, less established companies. Those with well established histories like Boeing and Exxon seem like they would actually be helped by eliminating limited liability as they have long histories of not needing to use it.
      - 7y ago
js8 7y ago
> I understand why there is a human need to hold someone accountable for everything You're right, there has to be a balance between punishment and forgiveness.
jdmichal 7y ago
The basic premise seems simple and not-wrong enough: External costs are not borne by shareholders, so they are not priced into the market. I mean, that's kind of the definition of externality. Everything else is hot garbage, though. I don't understand why the shareholders are being dragged into this at all... Suddenly making millions of people partially liable for the acts of the company would result in nothing other than panicked crashes. Not to mention things like index funds suddenly becoming untenable -- imagine liability to the entire stock market?! And that to me is enough to confirm that this is barking up the wrong tree, because index funds are one of the best things to happen to the investment market for the average person. The answer is to internalize the costs to the corporation, so that the market can properly reflect them just like every other cost. This works fine, and doesn't destroy the very nature of the market or shareholding. EDIT: I mean this broadly. Not just carbon taxes and other classic examples of externalities. But also things like proper fines against damages discovered in court. Currently fines seem flatter than they should be. They're often enough to completely shutter a small company, but when scaled up often don't even negate the potential profits for megacorps.
eesmith 7y ago
I don't see that conflation nor that misunderstanding. > not connected to limited liability [like] pollution I'm pretty sure that's in reference to things like https://indyweek.com/news/legal-maneuver-absolve-duke-energy-responsibility-coal-ash-dumps/ https://indyweek.com/news/legal-maneuver-absolve-duke-energy... where a company offloads its pollution liabilities to an under-capitalized LLC: ] In most cases, the landowner would be legally liable for such damages. But the owner of the abandoned brick mine is not Duke Energy; it's Green Meadow LLC, a new corporation led by the president of Charah Inc., a Kentucky ash disposal company contracting with Duke on the coal ash project. ] Once Charah takes possession of the ash, Duke may not be responsible for the waste, legal experts say, a contingency that may be part of Duke's private contract with Charah. ] And if Green Meadow or Charah does not have the money to pay damages emanating from a lawsuit, then county governments and the state not Duke Energy may be ultimately forced to pay, legal experts say. > misunderstands limited and zero liability I find it hard to believe that "Katharina Pistor, Professor of Comparative Law at Columbia Law School, [and] author of The Code of Capital: How the Law Creates Wealth and Inequality." understands the topic worse than an HN commenter. > pretending the former is the later I don't see that. For example, Pistor writes "The corporate entity itself might face liability, perhaps even bankruptcy, but the shareholders can walk away from the wreckage, profits in hand." That distinguishes between limited and zero liability. A quick look (following the links) finds several papers related to piercing the corporate veil. Eg https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1517428&rec=1&srcabs=1871173&pos=2 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1517428&... describes how the inability to pierce the corporate veil may "improperly shield irresponsible business owners."
- LatteLazy 7y ago
  Just FYI, on the Green Meadow point, companies are already required to show that when they transfer liabilities like this, the entity transfered to is "properly funded". People can argue over what level of funding is required, but there are funding requirements. The article itself even mentions higher funding requirements when the EPA classes waste as a Hazardous etc. If that we're not the case, llcs would be a sort of crazy loophole to dump problems and walk away. But it's not. We already have a whole web of regulations, most based around requiring insurance and regulating insurer risk profiles... In answer to you the "profits in hands" quote, I think that's misrepresentation because its incredibly rare. How many times does someone invest in a company, magically get more than their investment back in cash and then the company goes bankrupt and have it all happen so quickly that it's fraud rather than just 10 years of success and failure? The article doesn't give even 1 example of that. Also to take advantage of limited liability a dividend needs to be properly declared and paid. Companies that realise they have major liabilities can't do that. That's why they don't. So the article pretends you can just wait till pay day, liquidate everything and throw the money over the fence and you get away with it.

pjc50 7y ago

The shareholders are not usually the ones making the decisions, the managers are. Rather than going after Joe Average's pension when he put $100 in an index fund that turned out to own Dow Chemical, go after the managers. Perhaps a rule that anyone in a decisionmaking position who earned over $1m total comp last year is partially liable for fines against the company? In the UK a few decades ago there was a huge fiasco when Lloyds, one of the few remaining places whose investors have unlimited liability because the company dates from 1686, dumped liabilities relating to asbestos onto them. https://www.theguardian.com/money/2000/nov/04/business.personalfinancenews1 https://www.theguardian.com/money/2000/nov/04/business.perso... Was Sir William Jaffray responsible, in the 1980s, for the actions of those marketing and installing asbestos in the 1970s? He ended up liable for it anyway.

wffurr 7y ago
Like Sarbanes-Oxley but for more than just financial certification.
danpalmer 7y ago
> Perhaps a rule that anyone in a decisionmaking position who earned over $1m total comp last year is partially liable for fines against the company? In UK banking now there are regulations that manager above a certain level are legally liable for decisions made below them. This means in the worst case, a director level manager can go to prison for a decision they or one of their subordinates makes. If it's a subordinate, I believe it is their responsibility to prove that the information was hidden from them, i.e. they are required to know what's going on below them as far as they reasonably can.
techsupporter 7y ago
> ... Lloyds, one of the few remaining places whose investors have unlimited liability because the company dates from 1686... It’s worth noting that even Lloyd’s has been changing as a result of unlimited liability being, well, a liability. New private individual investors with unlimited liability (called “Names” in Lloyd’s parlance) haven’t been admitted in some years and corporate entities have been admitted to join with limited liability for almost thirty years. As it stands now, something like only 3% of Lloyd’s insurance capacity is provided by unlimited liability Names and that’s expected to hit 0% before 2030.

vorpalhex 7y ago

I fully support this. Next time an Exxon spill leaks oil into the ocean, we should gather up our teachers and mail carriers whose pensions are invested in oil and put them in jail. That'll really show those polluters! Sarcasm aside, this strikes me as the kind of vague solution waving that sounds great on paper and has no connection to reality.

pmiller2 7y ago
The correct implementation of this is to apply more personal liability to executives and directors making the decisions that lead to oil getting dumped in the ocean. When decision makers go to prison as a result of negligently bad decisions, they will not be as negligent as often. Is that specific enough?
- pjc50 7y ago
  Yes. But that's nothing to do with the normal meaning of limited liability.
  - pmiller2 7y ago
    Yes, it does. Limited liability protects directors of a company as well as shareholders.
- Noos 7y ago
  But we already have the idea of piercing the corporate veil though. I'm not sure needing to change the structure of limited liability matters as much as formalizing and unifying that concept.
  - pmiller2 7y ago
    Either way, what’s needed is to increase the level of liability on those that control the actions of corporations. What you call it doesn’t matter, the effect is the same.
pessimizer 7y ago

baryphonic 7y ago

I was not surprised at the low quality of this piece, but was shocked that the author is a law professor, and at Columbia no less. The professor should know better. Limited legal liability is not the essential aspect of incorporation, legal personhood is. The ability to sue and be sued as its own entity is the one unique aspect of the corporation that distinguishes it from what came before. Limited liability, on the other hand, is commonly used in contract law. The entire insurance industry is based on this idea. It even has a respectable, legalese name: indemnity. In a world of shareholders having unlimited liability, shareholders would buy insurance against any loss beyond the cost bases of their investments, or they'd require the corporate entity - again, still a legal person - to indemnify them for any losses beyond the investment, or maybe the clever lawyers - including the professor's own students - would use indemnity to make even more innovative agreements and tools. By creating out of whole cloth a market for insurance that heretofore has not existed, we'd probably see even more of a culture of haves vs have nots in the investment world. Those with more money and prestige would be able to buy better protection; ordinary people would be less well-protected. In the end, we'd have a less equal system, more uncertainty and no change in the behavior of corporations with respect to liabilities of their shareholders.

Arnt 7y ago
I don't really see how it would be better. The corporations that I've heard described as evil most often don't seem to be affected at all, at first thought at least. Some because they're profitable, others were at risk around 2008-2010, but were kept from bankruptcy (with or without shareholder liability) because of systemic risk. Could you explain what problem this would solve?
hogFeast 7y ago
It is interesting (or worrying) to think about why someone like this writes an article like this. It seems kind of self-evident that limited liability gives people the opportunity to sue companies, and her main issue is apparently with the quantum of judgement against companies (left unsaid is why they would be larger against individuals or whether employees are able to shoulder those legal liabilities). But this is where we are now...a sizeable proportion that think that everything companies do is innately evil (these people often have tidy public sector jobs that are paid for by these companies). It is very weird...it is like life is a Disney film with evil rich people and virtuous poor people.

kraigie 7y ago

If companies are persons. Should we arrest them? Tax them like individuals?

mellavora 7y ago
or subject them to the death penalty in the case of gross crimes against humanity?
tathougies 7y ago
Corporations are taxed like individuals. The individual tax is the tax borne by the entirety of shareholders of the corporation as individuals. Corporations are then taxed again. They are doubly taxed entities unlike a passthrough LLC or sole proprietorship

kube-system 7y ago

When a pharmaceutical company makes some opioids that kill people, it's my mom and her 401(k) account that should be liable? And this will reduce inequality? Not sure I'm buying that one.

Geeek 7y ago
I mean, she profited when the company sold all the opioids that caused the stock to go up, why should she be off the hook on the negative end?
- kube-system 7y ago
  She didn't realize any profit if she still holds the stock. But that technicality aside, we already do hold her liable, but only to the amount of her investment. The point of my comment is, why would increasing her liability (from the amount of her investment, to everything she owns) decrease inequality?
  - flyingfences 7y ago
    > we already do hold her liable, but only to the amount of her investment That's the thing, though - we don't. Her liability is limited to effectively zero. Her investment may lose value, but that is another risk entirely. If the company in which she is invested goes bankrupt with a billion dollar debt, she isn't on the hook for a penny of it.
bpt3 7y ago
Her 401(k) should definitely be liable, in that her investment in a company that arguably shouldn't be allowed to exist is lost. She should not be personally liable as she had no direct part in the decision to make opioids that kill people.
gmiller123456 7y ago
>my mom and her 401(k) account that should be liable? That shows one of the really big problems with 401k's, you pretty much get no say in what companies you invest in. Worse, you usually can't even get information about what companies you invest in.

deleted 7y ago

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bpt3 7y ago

The lack of regulation and enforcement by government agencies and a disinterested or powerless consumer base seems to be the root cause of almost all her issues, not limited liability. Because the repercussions of catastrophic events aren't enough to bankrupt companies like Exxon, Dow, and BP, limited liability is irrelevant in those cases. In my opinion, a more coherent argument for her position (which I don't agree with at all to be clear) would be to find examples of companies that did go bankrupt after some negative event they caused and highlight how the limited liability of the corporation shielded bad actors from punishment they arguably deserved.

lanternslight 7y ago

We need a corporate death penalty: when a corporation has been convicted of murder out other acts, the corporation should be dissolved, the assets sold off, and the proceeds distributed to the victims families. As it stands now, the execs get their gold, the corporations get a slap in the wrist, and then it's business as usual.

bpt3 7y ago
> We need a corporate death penalty: when a corporation has been convicted of murder out other acts, the corporation should be dissolved, the assets sold off, and the proceeds distributed to the victims families. That's what is supposed to happen through the legal process, but isn't currently as you pointed out. We don't need new processes, we just need to use the ones we have as they should be.
AnthonyMouse 7y ago
A corporation's assets are typically worth more as an operating business than as a disjoint collection of vehicles and land, so the buyer would tend to be someone who wants to continue operating the business and would buy the whole thing. In many cases the value of the business would also exceed the liability, in which case the difference should presumably go to the original shareholders. They might then want to use that money to invest in the new business. That is effectively what already happens. You're basically just asking for the amount of liability for particular behavior to be larger than it is, and then in more cases it would cause the corporation to go bankrupt and have to raise new capital in order to continue operating, because the result would be the same.

pavon 7y ago

> Markets are supposed to measure and allocate risk, yet shares in companies that pollute, peddle addictive pain killers, and build unsafe airplanes are doing just fine. This has nothing to with limited liability shielding investors, and everything to do with the companies themselves not being adequately punished for their wrong-doing. The market is accurately measuring the risk of these activities and determining they are low risk, because their consequences are lower than their gains. If you fix that, I guarantee you that the stock prices will follow. Now investors will still end up making some profit of off harmful behavior of companies before that behavior comes to light, and thus the market reacts to it, but I don't know that investors should be punished in that situation. It is at most negligence, but it is hard to blame them for lack of due-diligence when regulators and law enforcement, whose job it is find wrongdoing, hadn't yet discovered it either. Leave the liability on those who performed, agreed to, or at least had knowledge of the wrongdoing.

unishark 7y ago
I think it has more to do with one's definition of "doing fine". Boeing lost money. They can continue as a going concern since their 150k employees have a ton of other things going on that investors expect to make money, aside from one particular flawed product. It seems wrong to me to require punishment to scale with the size of the company, as opposed to the size of the "wrong doing". If Boeing has ten other subsidiaries doing defense contracts, satellites and whatever else, that should require them to be fined ten times more?

mnm1 7y ago

I'd rather see criminal penalties for execs who commit such actions. A good example is Boeing's CEO. He's the one whose policies led to the unnecessary death of 300+. He knew what he was doing and instead of a golden parachute, should be spending life in jail or even getting the death penalty as the number of people he murdered is enormous, eclipsing most serial killers. Have real accountability and real consequences and what happened will not happen again. Instead, he gets millions and a nice retirement for murdering hundreds. He's living the American dream: making profit off other people's misery. The same can be applied to other disasters that could have been avoided if the executives weren't negligent, uncaring, greedy assholes. But let's face it. Justice like this is a fantasy that will never happen because as a society we believe corporations can do nothing wrong. Or maybe it's just Washington that makes it seem that way. The distinction is almost irrelevant since Washington is supposed to represent our people.

dieselerator 7y ago

It occurs to me I should consider the following. The author is a lawyer arguing to expand the field of defendants in a lawsuit. Most of those defendants would be likely to settle rather than be dragged into court. Who would be the beneficiary in that scenario? (I am not a lawyer.)