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What (good) purpose do shell companies serve? LLC is limits liability doesn't it? Its not no liability. Surely a more effective and wide ranging measure would

by milfot 14y ago

What (good) purpose do shell companies serve? LLC is limits liability doesn't it? Its not no liability. Surely a more effective and wide ranging measure would be to enforce limits on the limitations. If no one wants to take some small amount of responsibility for a company, that company has no business existing.

damoncali 14y ago
They're not really shells. They're very small companies created to limit the exposure of the owners to liability. This is not weird or abnormal in business. Real estate guys use separate entities for their projects all the time. If one gets in trouble, it leaves the others intact. That is the whole point of limited liability.
- GFischer 14y ago
  Real estate guys shouldn't be doing it either. A coworker had his house destroyed by errors on an adjacent building site, and he faces the real risk of the real estate guys declaring a loss on this one and moving on to the next "shell company".
  - damoncali 14y ago
    Thnk about that for a moment, because it's not even possible. How are you going to finance a second building when the first one has the ability to suck up all the cash flow? No bank would do it. No equity partners would do it. Throwing out limited liability is a huge deal.
    - GFischer 14y ago
      Courts should have the option of making directors or whatever personally liable in the case of gross negligence (like cratering an adjacent building). Either that, or mandatory insurance for these cases. It's just unfair that someone is made homeless and faces the threat of being left out in the cold while the persons responsible are raking massive profits elsewhere. It's not a faceless meteorite crash, it was gross negligence. I can't find the news in English, but: http://www.lr21.com.uy/comunidad/430518-derrumbe-de-edificio-conmociono-parque-batlle-no-hubo-lesionados http://www.lr21.com.uy/comunidad/430518-derrumbe-de-edificio... In the case of patent trolls, "piercing the veil" is also complicated. There's also the common practice of naming a figurehead as the person responsible for a company, while the real owners don't figure in the legal documents (we call them "testaferros" over here). I don't know what the solution is (I wish I did), but the current system doesn't seem to be working out well.
zizee 14y ago
I have always understood the "limited" liability means that the company is liable, but the shareholders are not. In the case of the shell companies the owner is the parent company, not the shareholders. Thus the shell companies limit the liability to the parent company. This allows the parent company to sue people without the risk of an adverse ruling.

by milfot 14y ago

damoncali 14y ago

They're not really shells. They're very small companies created to limit the exposure of the owners to liability. This is not weird or abnormal in business. Real estate guys use separate entities for their projects all the time. If one gets in trouble, it leaves the others intact. That is the whole point of limited liability.

GFischer 14y ago
Real estate guys shouldn't be doing it either. A coworker had his house destroyed by errors on an adjacent building site, and he faces the real risk of the real estate guys declaring a loss on this one and moving on to the next "shell company".
- damoncali 14y ago
  Thnk about that for a moment, because it's not even possible. How are you going to finance a second building when the first one has the ability to suck up all the cash flow? No bank would do it. No equity partners would do it. Throwing out limited liability is a huge deal.
  - GFischer 14y ago
    Courts should have the option of making directors or whatever personally liable in the case of gross negligence (like cratering an adjacent building). Either that, or mandatory insurance for these cases. It's just unfair that someone is made homeless and faces the threat of being left out in the cold while the persons responsible are raking massive profits elsewhere. It's not a faceless meteorite crash, it was gross negligence. I can't find the news in English, but: http://www.lr21.com.uy/comunidad/430518-derrumbe-de-edificio-conmociono-parque-batlle-no-hubo-lesionados http://www.lr21.com.uy/comunidad/430518-derrumbe-de-edificio... In the case of patent trolls, "piercing the veil" is also complicated. There's also the common practice of naming a figurehead as the person responsible for a company, while the real owners don't figure in the legal documents (we call them "testaferros" over here). I don't know what the solution is (I wish I did), but the current system doesn't seem to be working out well.

zizee 14y ago

I have always understood the "limited" liability means that the company is liable, but the shareholders are not. In the case of the shell companies the owner is the parent company, not the shareholders. Thus the shell companies limit the liability to the parent company. This allows the parent company to sue people without the risk of an adverse ruling.