> [...] Frequently, this means that no one is responsible for the businesses' debts if it fails. See for example, most environmental cleanup litigation or asbes

> [...] Frequently, this means that no one is responsible for the businesses' debts if it fails. See for example, most environmental cleanup litigation or asbestos litigation. This is incorrect. A business that has legal personhood (i.e. a corporate entity) is still responsible for its own debts if it fails (i.e. it goes into bankruptcy and is fully liquidated). Just like any other person. By way of analogy, imagine a (natural) person's parents pass away deep in debt, and this person is not party to the parents' debts. In this case, the person may lose any potential inheritance, but the creditors may not go after the person's own assets in order to satisfy the parents' debts. Any assets belonging to the parents' estates may be liquidated to satisfy any outstanding creditors unless and until all of the debt is recovered. Businesses in receivership are treated in substantially similar ways. Therefore, _someone_ does indeed pay: the business itself. > Limited liability is not indemnity. > > Indemnity means that one party has to cover the other party's losses--in other words, pretty much the exact opposite of limited liability for the covering party. I never meant to argue that limited liability was identical to indemnity, but they are practically similar. Because a corporation is a legal person (again, merely meaning that it can enter into agreements, sue and be sued, and thus can acquire or dispose of property), limitation of liability is equivalent in effect to the corporation itself indemnifying any investors from having to cover any costs that are incident to the corporation's operations exceeding the investors' contributions. Perhaps the law could be structured in such a way that investors would retain some of the firm's liability exceeding their investments. This might be set up as some sort of bond held in escrow that an investor must post before investing, or maybe would involve the law authorizing creditors to go after investors up to some percentage of that person's share in equity in the event of collapse (this would almost certainly lead to large numbers of personal bankruptcies). My whole point was originally that there are already legal tools - like indemnity and insurance - that would preserve the aspects of limited liability. However, these would not be distributed in an equitable way, instead being most available for the wealthiest investors and the largest corporations, and inaccessible to ordinary people or entrepreneurs. In practice, we'd still have limited liability, but a more unequal one with higher lawyer fees.