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That’s the point of limited liability companies. Shareholders are able to invest capital without needing to invest anything else (like time) and without worryin

That’s the point of limited liability companies. Shareholders are able to invest capital without needing to invest anything else (like time) and without worrying that they will go to jail for something the company does, with or without the consent of the shareholders. This is hugely important to VC funding and to the entire share market. Imagine buying shares on the NYSE and next week you’re in prison!! So that is sensible I think. The flip side is that shareholders don’t get to make any material decisions about running the company; that’s the job of the directors (who might not be shareholders). Directors are, in theory, legally liable for the actions of the company they manage. All this would be fine with me, and directors certainly have gone to jail for crimes committed by their company, but it’s incredibly rare, and in Australia where I live, is generally related to trading insolvent, tax avoidance, or other clear and simple legal issues. But go ahead and let your company illegally blow up irreplaceable ancient cave paintings in the outback, and you’ll be fine. In fact, in Australia at least, the corporate regulator ASIC is so toothless that there is no straightforward way to enforce director’s breaches of company constitutions or other governance agreements other than directly with lawyers. This makes enforcement of the governing documents of a company (the documents that the shareholders sign up to) incredibly expensive and intimidating. Even clear breaches of the Corporations Act, the governing law of business in Australia, must be dealt with through civil law. So if you are a minority shareholder in an Australian Pty Ltd company and the directors decide to break their agreements with you - say an agreement to use green energy or to use ethically sourced labour - you’re screwed unless you sue them. If you’re a small time investor or if a significant portion of your wealth is invested in that company, you’re shit out of luck. The directors can do what they like. That’s messed up, because it means that directors can get away with almost anything, even if the minority shareholders disapprove, and there is zero recourse in the justice system. I presume that, as with many things legal, Australia follows the US in this regard, but I don’t know this for certain.

gambiting 6y ago
>>Imagine buying shares on the NYSE and next week you’re in prison!! So that is sensible I think. If you give your neighbour some money and he goes and buys a gun with it and kills someone, you can be held liable in that scenario(depending on the intent, on how well you knew what he was going to do etc etc etc). If you give a company money(investment) and they go and destroy the Amazon illegaly.....your hands are clean? I mean, obviously I understand what you mean. I own some shares myself. But there has to be some middle ground between "100% responsibily, straight to jail" and "give money to people who do bad things, have 0 responsibility".
- TeMPOraL 6y ago
  I'm assuming - hoping - that if could be demonstrated that a LLC was open about trying to engage in illegal practices, and the investor knew that before investing, then the investor could be charged with facilitating crime.
  - sokoloff 6y ago
    Lots of companies operate in a grey area. PayPal, Uber/Lyft, AirBnB, and others were all open about “disrupting” which is code for breaking regulations that some people don’t agree with. All four of those companies have made my life better and I’m glad someone invested to make them happen.
    - iudqnolq 6y ago
      I'm sure people say the same about drugs
    - TeMPOraL 6y ago
      It was entirely possible to achieve the same disruption without breaking laws, so think instead of the opportunity cost - the damage done to the markets, granting wealth to people who demonstrated sociopathic tendencies and blatant disregard for the law, allowing those people to follow their principles and abuse their workers/"partners" at scale, and erosion of public trust in local governance. All of which could perhaps be avoided if the investors were afraid to be associated with such scummy business practices, and instead pressured aforementioned startups to stay fully above board while realizing their vision.
      - sokoloff 6y ago
        To test that with a simple example, could you describe how Uber could plausibly disrupt medallioned cabs in NYC without breaking any laws?
      - roenxi 6y ago
        You're describing a world where quite possibly no-one would be stupid enough to start PayPal, Uber/Lyft or AirBnB. Limiting risk is one of the most counterintuitive laws that has ever stuck, and one of the most devastating for the poor countries who didn't adopt it fast enough. Without those protections it would be far too risky to invest in companies that people weren't intimately involved with. The scope of human activity would be limited to things that could be achieved with a small business. While not necessarily the end of civilisation, it would be a huge change. And quite likely knock down one of the ladders (a well balanced stock portfolio) that people use to move up into the middle class. I'm not a fan of the idea. It entrenches class divisions and probably shrinks the middle class. It raises difficult questions of how retirement would be set up too, it would be much harder to organise an independent retirement without access to the share market.
sokoloff 6y ago
In practice it’s overwhelmingly common for Directors in a company to be shareholders. I’m sure there’s a counter-example somewhere, but it’s quite rare.
- doctor_eval 6y ago
  Not at all. At least in Australia, loads of companies have outside “trophy” chairs or directors who don’t own shares, and just earn a wage; it’s an arrangement that is intended to effectively buy prestige for the company. This may be because shares must typically be declared and taxed as income at the time of issue, which means there’s a significant out of pocket cost to the recipient, and which probably makes it more common for non shareholder directors than in the US? I’m just speculating, but the situation is pretty stupid here. There were some reforms a few years ago, but they didn’t go far enough.
- michaelt 6y ago
  Directors being shareholders doesn't stop directors having a big incentive to screw over shareholders. Imagine I'm the CEO of FooCorp, I own 5% of the shares, and FooCorp have $10 million in profit. I'll make $500k if I pay out that profit as a dividend - but I'll make 20x as much if I pay it as a 'pension contribution' to myself.

gambiting 6y ago

>>Imagine buying shares on the NYSE and next week you’re in prison!! So that is sensible I think. If you give your neighbour some money and he goes and buys a gun with it and kills someone, you can be held liable in that scenario(depending on the intent, on how well you knew what he was going to do etc etc etc). If you give a company money(investment) and they go and destroy the Amazon illegaly.....your hands are clean? I mean, obviously I understand what you mean. I own some shares myself. But there has to be some middle ground between "100% responsibily, straight to jail" and "give money to people who do bad things, have 0 responsibility".

TeMPOraL 6y ago
I'm assuming - hoping - that if could be demonstrated that a LLC was open about trying to engage in illegal practices, and the investor knew that before investing, then the investor could be charged with facilitating crime.
- sokoloff 6y ago
  Lots of companies operate in a grey area. PayPal, Uber/Lyft, AirBnB, and others were all open about “disrupting” which is code for breaking regulations that some people don’t agree with. All four of those companies have made my life better and I’m glad someone invested to make them happen.
  - iudqnolq 6y ago
    I'm sure people say the same about drugs
  - TeMPOraL 6y ago
    It was entirely possible to achieve the same disruption without breaking laws, so think instead of the opportunity cost - the damage done to the markets, granting wealth to people who demonstrated sociopathic tendencies and blatant disregard for the law, allowing those people to follow their principles and abuse their workers/"partners" at scale, and erosion of public trust in local governance. All of which could perhaps be avoided if the investors were afraid to be associated with such scummy business practices, and instead pressured aforementioned startups to stay fully above board while realizing their vision.
    - sokoloff 6y ago
      To test that with a simple example, could you describe how Uber could plausibly disrupt medallioned cabs in NYC without breaking any laws?
    - roenxi 6y ago
      You're describing a world where quite possibly no-one would be stupid enough to start PayPal, Uber/Lyft or AirBnB. Limiting risk is one of the most counterintuitive laws that has ever stuck, and one of the most devastating for the poor countries who didn't adopt it fast enough. Without those protections it would be far too risky to invest in companies that people weren't intimately involved with. The scope of human activity would be limited to things that could be achieved with a small business. While not necessarily the end of civilisation, it would be a huge change. And quite likely knock down one of the ladders (a well balanced stock portfolio) that people use to move up into the middle class. I'm not a fan of the idea. It entrenches class divisions and probably shrinks the middle class. It raises difficult questions of how retirement would be set up too, it would be much harder to organise an independent retirement without access to the share market.

sokoloff 6y ago

In practice it’s overwhelmingly common for Directors in a company to be shareholders. I’m sure there’s a counter-example somewhere, but it’s quite rare.

doctor_eval 6y ago
Not at all. At least in Australia, loads of companies have outside “trophy” chairs or directors who don’t own shares, and just earn a wage; it’s an arrangement that is intended to effectively buy prestige for the company. This may be because shares must typically be declared and taxed as income at the time of issue, which means there’s a significant out of pocket cost to the recipient, and which probably makes it more common for non shareholder directors than in the US? I’m just speculating, but the situation is pretty stupid here. There were some reforms a few years ago, but they didn’t go far enough.
michaelt 6y ago
Directors being shareholders doesn't stop directors having a big incentive to screw over shareholders. Imagine I'm the CEO of FooCorp, I own 5% of the shares, and FooCorp have $10 million in profit. I'll make $500k if I pay out that profit as a dividend - but I'll make 20x as much if I pay it as a 'pension contribution' to myself.