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If they invested $100 made decisions that cost $150 and now lost their entire $100 investment, they are shielded against the $50. Hence, anything that has real
by rocqua 6y ago
If they invested $100 made decisions that cost $150 and now lost their entire $100 investment, they are shielded against the $50.
Hence, anything that has real costs higher than their invested stake has effective costs for them at their invested stake. They are shielded to some extent. Especially for low probability high cost events.
This is exactly the point of a limited liability company, but it comes with slightly perverse incentives.
- refurb 6y agoWhen was the last time a shareholder made decisions like what led to this bankruptcy?
- cies 6y agoSome times smaller companies do stuff that makes them a lot of money but also creates debt or legal liabilities (transgressing some environmental laws or not paying taxes). When they go bankrupt later the "investors" already took the proceeds out by dividends. This certainly happened a lot.