3 ms·

Well, it caps risk, but doesn't remove it. Whomever owns the corporation presumably put some equity into it, right? That's the amount they have at risk.

• alan-crowe 13y ago
  The cap is about as low as it could be. The investors put up capital which is committed to the ordinary operation of the business. Buy some materials, hire some workmen, make some stuff. Perhaps none of it sells even at 90% off. The capital is gone. BUT the investors were never on the hook for any extra. One could imagine company law creating a same-again limitation on liability. If you invest a million dollars, you have two reasons to watch the management you appoint, first they could lose your investment. Second if they screw up and do a lot of damage the investors are on the hook for the same again; potentially another million dollars. It is quite a tricky proposal to analyze. Consider the common practice of supplying goods on 30 days credit. It is slightly risky. The purchaser might go bust without paying. Under current once-only limitation of liability it is common for suppliers to lose out, which can cause a ripple effect as one company goes bust, causes its suppliers to fail causing their suppliers to fail... Under same-again limited liability the ripples go in a different direction as investors liquidate assets to meet "second" liabilities.