If the owners of corporations were liable for their debts would we be in this crisis?
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Woofmeister
Golden Member
- Jul 18, 2004
- 1,385
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Do you mean as in ever single shareholder of a corporation? Because they're also, you know, "owners" of corporations.
Limited liability of shareholders in corporations is one of the bedrock foundations of modern finance. Without it, it would be impossible to sell equity and corporations would just borrow to raise capital--making this crisis even worse than it already is.
Limited liability of shareholders in corporations is one of the bedrock foundations of modern finance. Without it, it would be impossible to sell equity and corporations would just borrow to raise capital--making this crisis even worse than it already is.
Thump553
Lifer
- Jun 2, 2000
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Limited liability is precisely the reason corporations came into being. You are rearguing something that was settled literally hundreds of years ago. To eliminate the corporation (which is what you suggest in actuality) would send our economy back to the middle ages.
Wow, nef much? You've got 7 of the 16 threads on the front page, all of them with stuff like this.
Your idea is horrible. Equity holders, the owners of the company, are already at the bottom of the food chain.
Your idea is horrible. Equity holders, the owners of the company, are already at the bottom of the food chain.
I think his point is that there were non-execs at Lehman, that lost their jobs and all their stock overnight almost. Nothing to laugh at there.... try to get a job in the finance sector today.... nothing to laugh at there either.
Heh, I guess having close to $50 Billion in market cap (or total stock value for those people who love to talk but don't know much) wiped out in Lehman brother's case, or ~$200 billion in AIG's case is not enough incentive for shareholders to keep the companies away from getting into this mess.
- Sep 26, 2000
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Apparently it wasn't. Nor was it enough to prevent the S&L collapse.
Let me put it another way. If the owners of the corporations had a stake in the corporations policies equal to what you and I have in our lives, where we are responsible for our debts, then we wouldn't be in hands of corrupt regulators.
The entire point legally for a corporation is to create a "shield" around personal assets and keep them separate from the corporation's assets. They do this by calling the corporation itself an "entity".
I have however seen arguments stating that true capitalism would not allow corporations to be formed, because you can not truly punish a corporation for wrong doing. The best you can do is take away money, but that only affects shareholders, who probably had little or no involvement in the decisions being made. It does not punish the people running the company.
Edit- unless those people are also shareholders
You keep using the word owner. The owners of a corporation are the shareholders. I think you are referring to the people who are running these companies, (CEO, COO, CFO, etc) not the owners. BIG definition difference when you are talking about corporations.
The problem is it's hard enough to get a conviction in court against a corporation, then you have to take it another step and prove this particular executive had full knowledge of the illegal activity, participated in the illegal activity, etc.
Actually getting a conviction against an executive of a large corporation is a very rare thing. Even if they were doing wrong most are smart enough to cover their tracks so the worst you could do is sue the corporation, but not come after them personally.
Yes, but what else are we really supposed to do that does not severely damage the innocent people in this mess?
We can only do what the law allows. Other than that we have to change the way things are done and change the laws.
Fern
Elite Member
- Sep 30, 2003
- 26,907
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This is incredibly silly.
As others have already pointed out, owners != employees (execs in this case); and limited liability exists for too many valid reasons to list here.
More importantly, it's up to lending institution to do so wisely. If the companies weren't worthy of being extended credit - they shouldn't have been. Period.
Fern
dphantom
Diamond Member
- Jan 14, 2005
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As an owner of many companies (via stock purchase) I don't think I want to be personally liable for any debts. If the company I am an owner of goes bankrupt, my punishment is that my stock becomes worthless.
As for executives/officers of the company, there are specific instances in which they can be held liable, either criminally or civilly. Being stupid/greedy generally does not qualify.
As for executives/officers of the company, there are specific instances in which they can be held liable, either criminally or civilly. Being stupid/greedy generally does not qualify.
I don't have a problem with the officers *and* the board of directors being personally liable for financial health of the company. After all they are the ones that most directly profit from it and have the most direct control over the health of the company. Their employment contracts should have a clause that should the company lose money that their bonuses, perks, and salaries were forfeit to make up for the loss under their leadership (with certain caps on salary forfeiture - they do have to live on something). Their contracts already have bonuses in if the company is profitable, it ought to have penalties for losses.
BoberFett
Lifer
- Oct 9, 1999
- 37,562
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Correct. A truly free market would shun the idea of a government protected entity known as a corporation. Limited damages is an incentive for short term profits at the expense of long term thinking. Pump it and dump it.
That's what most people around here don't understand about the free market. The free market doesn't allow corporations to abuse their charters. That's all government's doing.
Wow, bitch much?
CEO's should hold a greater responsibility than they currently do. Although of course I'm sure you support the golden parachute economics from top to bottom so I shouldn't be surprised.
Fern
Elite Member
- Sep 30, 2003
- 26,907
- 174
- 106
They are. They lose the money they put in.
In closely held companies, the owners/officiers (usually the same) do have to sign personally for debt of the company.
For large publicly traded corporations, it's a phenominally stupid idea once one pauses to think for a second.
There are millions of shares, and thousands if not millions of shareholders - how do you get them to ALL sign for loan guarantees? How do you follow up with all in court in case the company defaults? That stuff comes under state law too, it would be horribly complicated to attempt.
Stock is sold continously, how would you handle transfer of stock from me to you? You'd no longer be an onwer, who's going to know I am, when will the bank find out and how do they get me sign?
Stocks can be bought by foreigners, good luck holding them to a US law and going after their assets in their home country.
It makes no sense, the stock market wouldn't exist and no one would buy stock anyway. How do you research what potential debt there is you might assume before buying a company's stock? How can the company enter into debt in the ordinary course of business without each and every "owners" permission? Or should people be personally responsible for debt they had no knowledge of, or say in?
The way things are now is the way it should be. It's up to banks and other lending institutions to make prudent decisions about lending to these big companies. The whole SEC thing is all about having quality information available for banks to use.
It's just that the federal government shouldn't be bailing out banks and other lenders for stupid decisions they made.
Fern
Not so fast. The limited liability doens't have some noble history based in altruism, it was for corrupt leaders to immunize themselves from any liability beyond their initial investment. It was the crown saying 'you, mister plunderer, who are out to pillage to collect wealth for me and the other shareholders, whatever you do, we don't have to pay the damages."
The first corporation to do this was the East India Limited Liabilty Corporation, created by Queen Elizabeth in 1600. This company went on to create wealth for her and eventually more and more of England, by ruthlessly subjugating others. Among other roles in history it's played were the central roles in the rebellions leading to the nations of the United States and India, and the Chinese Opium wars.
The thing is, it's one thing to debate the pros and cons of how much liability the owners shoudl have for the harms they get their corporations to cause, and another to have any practical chance to do any of them, to do anything to prevent the sort of raping of society done by some in the current financial meltdown.
I think we need to battle against among other things the corporate rights as 'persons'. It's a very uphill battle.
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