Limiting limited liability

Just for some background, Lord Thurlow was a Tory Lord Chancellor of the 18th century. The 1911 Encyclopedia Britannica comments:

Thurlow’s public life was as factious as his youth had been daring. His hatred of the American colonists, and his imprudent assertion that as Attorney-General he might set aside by scire facias as forfeited every charter in America; his speech in aggravation of punishment in the case of Home Tooke, when he argued that the prisoner ought to be pilloried, because imprisonment was no penalty to a man of sedentary habits and a fine would be paid by seditious subscription; and his opposition to all interference with the slave trade are characteristic.

and further

Lord Thurlow was a master of a coarse caustic wit, which habitually in his private and too frequently in his public life displayed itself in profanity. He was a good classical scholar and made occasional translations in verse from Homer and Euripides. His judicial and his ecclesiastical patronage were wisely exercised; he was the patron of Dr Johnson and of Crabbe, and was the first to detect the great legal merits of Eldon.

Thurlow’s personal appearance was striking. His dark complexion, harsh but regular features, severe and dignified demeanour, piercing black eyes and bushy eyebrows, doubtless contributed to his professional and political eminence and provoked the sarcasm of Fox that he looked wiser than any man ever was. Yet he was far from being an impostor. By intense though irregular application he had acquired a wide if not a profound knowledge of law. Clear-headed, self-confident and fluent, able at once to reason temperately and to assert strongly, capable of grasping, rapidly assimilating, and forcibly reproducing minute and complicated details, he possessed all the qualities which command success. His speeches in the trial of the Duchess of Kingston for bigamy are vigorous and effective, while his famous opening in the Douglas peerage case and his argument for the Crown in Campbell v. Hall show that he might have rendered high service to the judicial literature of his country had he relied more upon his own industry and less upon the learning of Hargrave and Kenyon.

Hurray for Lord Thurlow!

I suspect the real reason most corporations shouldn’t pay reparations has to do with the fact that they were engaging in acts that were not only wholly legal, but actively encouraged by the government.

I think it is also useful to look at corporate wrong-doing from the prospective of those injured.

Where there has been an injury who should bear the cost? Should it be the person who was wrongly injured, or the owner of a company who committed the injury?

The current owner may not have been alive during the crime, or even aware of the events, but such an owner takes that risk in acquiring a stake in the company. Such an owner may also receives unknown benefits from past behavior (like, say, buying up mineral rights thought to be worthless that turn out to be very valuable).

The modern corporate form protects owners from unlimited liability, and allows them a peice of profits in which they have invested little, if any time. Part of the price you pay for having the luxuary of agents (directors and executives) acting for you is paying for the wrongs they have committed.

It might also be noted that the fictional entity of a corporation gets protections as a person under the US constitution. This may be a bad call on the part of the Supreme Court, but if they get free speech, they can also pay for their wrongs.

Ah, this was the only interesting topic in Corporate Law. (Though why it’s called “veil piercing” is beyond me.)

I’m ok with limited liability on utilitarian grounds, but I think there should be exceptions for:
1) tort creditors.
2) parent-subsidiary corporations–right now it’s way too easy to structure things so that you’re totally unaccountable–not only indiviudals but the main corporation itself.

And the government ought to be able to impose certain restrictuions in return for the huge privilege of limited liability.

By the way, how does this work in other countries?

I would love to see individuals who engage in illegal activities be brought to justice. The issue is, in many cases the need for protection has nothing whatsoever to do with illegal activity.

Corporations get sued very frequently for things that someone in their organization did (not refering to the top management in this case). One reason to incorporate is to make a lawsuit, brought against your company for negligence by an individual in your company, not directly take all of your assets. Ideally, the action would be taken against the individual that caused the issue, but the suit is not brought to them, because that person does not have the resources to cover for their mistake. This is particularly true in many modern cases where the suit is little more than a lottery winning and the courts are finding for ridiculous sums to be paid to plaintiffs.

I am sure there are cases of criminal activity being done by those that run the company and then the “corporation” being used as a sheild, but in many more cases the corporation is used as a protection for those in the corporation that did not engage in illegal acts. In fact, the initial reasoning behind the corporation was to allow people to invest in a good business idea, and to have ownership of said company, without being held liable for improper actions carried out by officers of the company. If I as a worker wanted to invest in my own company, I should not be held liable for more than what I have put into the company, jsut because some big-wig at the top did something wrong.

Illegal activities carried out by individuals should be punished, but only the individuals that engaged in it should be punished. Limited liability allows for this, and it allows for a company with poor monetary policy to go under without taking the assets of the individual owners, i.e. stockholders.

When “corporate taxes” are levied, what is not understood is that they are in fact taxes on individuals. The taxes are paid for by the owners of the company through lost profits, the workers of the company through decreases wages, and the consumers of said companies’ products and services through price increases. Taxes are always levied on individuals. There is no way to be taxes and have that tax not affect each of us in the form of lost assets or increased cost of living. The complaint is that the corporation has no soul to damn or pants to kick, but it also has no individuality to tax, any and all added costs (taxes included) trickle down to we the people.

limberwulf-

First, let me refer you to professor bainbridge’s response, which you can click at the trackback. He states that he was discussing retributive justice, which can only apply to individuals, but that ecconomic restitution and deterrence CAN be served by holding Corps liable. Good utilitarian reasons for limited liability certainly exist, but it creates a pervers way in which actors can escape responsiblity for their actions. Killing (or just punishing) corps that do not prevent individuals from breaking laws on its behalf would quite soon result in most corps that still exist incouraging individuals to obey the law.

As for your response to the tax issue, you are committing serious zero-sum thinking. Corporations are created by government and individuals because the individuals can produce more ecconomically with the corp than they can without it. The question then arrises, how is this extra sum to be split among the creators? I am simply suggesting that the community/government act like any other self-interested participant and get as much of the extra as it can. If you really believe that the government contributes no extra benefit by passing laws that create corporations, then please explain why people choose to do business in the corporate form when it costs them money to do so in the form of corporate taxes, and it is possible to conduct all of the same business activities without the corporate shell.

Punishment is barbaric. Whether of corporations or of individuals, it’s an internalized barbarity, taken in by children so deeply and so early they grow up to think it’s natural law.
The application of force or pain or unpleasant consequences as a means of preventing further offense is not punishment. Punishment is viewed by its adherents as a kind of cause and effect, a settling of accounts. Prisoners somehow “pay their debt to society” by spending time behind bars. Punishment leads to absurdities like fixed penalties and mandatory sentencing, and the odd and dysfunctional violence of the American judicial system.
Which is not to say there is no place for civil force. Social living means order and rules, and rules will have to be enforced; but not as theater. Justice is not, and should not be, cathartic vengeance.
–
Typical how no one seems to see the corporatization of the descendants of slaves in the case of reparations. We see the innocent shareholders and the innocent executives prevented from going about their necessary, if inherited, business, even though they none of them had anything to do with the long-past crime.
But the potential beneficiaries of reparations are themselves mere inheritors, yes?
Where are those shackled unfortunates today? Their children are, too many of them, in the privatized penal institutions of America. Being used as a virtually unpaid labor force.
But none of the contemporary relatives of the slaves have a clear case for reparations as economic retribution. None of them can be said to have been directly involved. Those days are long over.
So the whole thing’s a wash and let’s get back to divvying up the spoils of a now victim-less and perpetrator-less, though still highly remunerative in its manifiold dividend, crime.

My grandfather robs your grandfather of a million dollars, they’re both dead, I’m keeping it.
–
As far as I know there is no statute of limitations on murder in the United States. Add in kidnap, rape, child molestation, and that the same responsible parties were simultaneously participating in the genocidal disenfranchisement of Native America as well.
The assertion that the passage of time alone can have cleansed the economic concerns of the men responsible is beneath refutation; the bloody guilt will be there forever; there is in fact no way possible to remove it, not through time or reparation, not even remorse will cleanse it; there is nothing to be done but shoulder the guilt and allow it, in its fulness, to change the hearts and minds of those who inherit what was left by those God-forsaken souls – ill-gotten fortune and shame.
In the long meantime, listening to the mewling rationalizations of those privileged heirs is an intolerable annoyance.

decnavda,
I see two issues in your argument. One is the assumption that the corporate model is being chosen only for the sake of increased profit. I have seen many corporate models (worked for some of them) that could have made more money as a sole proprietership, but chose the corporate model as a rick management move. As it turned out, this company was indeed hit with a lawsuit that bankrupted the company, but, fortunately, did not take the personal assets of the founder. He was able to start over and is currently doing well.

The second issue is that the corporate model actually has CHEAPER taxes than partnerships and sole proprietorships when all monies are not distributed as income. Before I knew this, I had a business of my own. I set aside a portion of business profits to put into capital growth, but had not used all of it for business equipment at the end of the year. The tax rate on that money was equal to my personal income tax, around 25% at that time. Equivalent corporate tax on those funds would have been 15% at the time. Because of the sum of money I had set aside, 15% tax on total profits would have been a savings even though it would have double taxed the profits going to payroll.

So, yes, perhaps a greater capital growth can be had in a corporate model, but the taxation of this money, particularly the sums that end up being double taxed, are still a decrease in the profits of the corporation. Those profits would have otherwise gone to: a) business growth and capital investment, a benefit to the economy. b) employee payroll, a benefit to the economy through job creation and/or increased disposable income. c) increased payout to shareholders, a benefit to the economy through increased disposable income. d) decreased consumer prices, and benefit to the economy by providing a good or service at a lower rate, allowing an effective increase in disposable income. The fact that the corporate model may allow increased profitability does not mean the monies taken by the government could not have been better spent by individuals. All taxes are a tax on individuals, there is no way to escape this. Money doesnt just appear, it is created through the efforts of people.

msg-

Sadly, I have a coworker, who believes every brilliant tenet of modern American Republicanism, who believes firmly that he should be able to keep whatever his grandfather stole.

Did I mention he’s a devout “Christian?”

limberwulf –
1. “How do you quantify risk management into exact taxable dollars?”
Beats me, but people in the insurance industry do it all the time. This may sound like a cop-out on my part, but it is not. If you were to ask me how I could possibly build an internal combustion engine, I would say that I would hire one of those people who build those that I see all over the roads. The expersis to do this rather precisely is out there for hire.

2. Personally, I would set the percentage the same way that Scholastic decides how much to charge for a Harry Potter novel. Recognizing that demand goes down as price goes up, charge what ever will bring in the most revenue. Again, assuming my theory that corporate taxes are paid out of increased revenue due to corporate existence is correct, this rate will represent the best “deal” the government can get.

A reasonable conservative position would be to set the rate at what will maximize social goods, which means public revenues plus the net of positive externalities over negative externalities. I would still disagree with this though, because I do not think the public should be any more willing ot count the birds in the bushes any more than corporate investors do.

3. “The dominance of C corporations as far as I know is directly tied to their ability to raise very large sums of capital from a far broader base of people to accomplish goals of production that require immense startup sums.” Bingo! Now you’re giving me support for my position. The C corps *DO* provide economic advantages that are confered by the government granting corporate existence. Thanks.