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A corporation has legal "personhood" independent of its managers and stockholders, in the sense that if the corporation becomes insolvent, its creditors can onl
by sethg 17y ago
A corporation has legal "personhood" independent of its managers and stockholders, in the sense that if the corporation becomes insolvent, its creditors can only get at the assets of the corporation itself. You can't get this kind of protection with contracts alone, which is why a new legal structure was created for corporations.
- bokonist 17y agoLimited liability is simply a matter of contract between the lender and the owners of the corporate structure. When a bank lends money to an LLC, the contract is that the bank can only seize the assets of the corporate structure, not of the owners. If the bank does not like this deal, they can refuse to make the loan. In fact, many banks will refuse to lend to small LLC's. They will insist that the owner pledge his own assets. Another way of thinking of it, is that equity holders hold the most junior debt. The idea that senior debt holders could come back and make the junior debt holders pay up more is ridiculous. Now, I do think that owners (and bond holders) should in some cases be liable for third party torts and criminal activities of the company. I don't know what the actual law is about this issue. If there is never any liability, that's a mistake. But I doubt that's the case.
- johnnybgoode 17y agoI agree with you, and unfortunately I must tell you that liability is indeed limited or erased. So, yes, it's a mistake.
- deleted 17y ago[deleted]