2 June 2006

The limited liability corporation is a government subsidy to risky investments and drives the reckless attitude of corporations towards the environment

Some Thoughts on Limited Liability:
  1. The difference between a partnership and a corporation is that shareholders in a corporation are protected from liability for the debts of the corporation in bankruptcy (“limited liability.”)

  2. The same protection from liability could be obtained in partnership by the purchase of “liability insurance” which would, if the company you co-owned went down, cover your debts. Because of the open-ended nature of the liability being insured against, this insurance would probably be fairly expensive.

  3. The fiat (government-created) limited liability provided by the state is actually a subsidy at the expense of those whom bankrupted corporations owe money to, in favor of the investors, and its financial value can be calculated as the total value of the insurance services provided to investors or perhaps as the total cost to the creditors.

Corporations are entities that enjoy protections not available to individuals. Provisions that enable them to easily close up shop to escape and elude consequences for destructive behavior. Take declaring bankruptcy for example — laws are being toughened up for the individual American, making it extremely difficult for those unfortunate to be afflicted and entangled with the onset of costly health care burden. Meanwhile, it's no sweat for an LLC to fold up and immediately start anew with a fresh charter. Ironically, all workers endure now in an age where we're all "free agents" of a sort, individual business entities forging our own success (or lack of success), where past traditions like company loyalty and long term employment are no more.