Has anyone called for the elimination of limited liability?

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One of the justifications that liberals make for the regulation and taxation of corporations is that corporations are by their very nature government-subsidized enterprises, because the government gives them limited liability status, i.e. it makes it so that even though the shareholders control what the corporation does, they are not personally liable for damages due to what the corporation does, beyond the money they've invested. This is in contrast to other kinds of organizations for which the members/owners would be personally liable if the organization did something bad. So they argue that the corporate tax is not an imposition on an otherwise capitalist system, but rather compensation for an existing government distortion of the capitalist system in favor of corporations.

So my question is, are there conservatives or libertarians who agree with the assessment that limited liability laws amount to corporate welfare, and thus call for the abolition of limited liability? After all, they tend to oppose other distortions of the free market system. Note that I'm talking about non-anarchists here; an anarchist would presumably be against limited liability laws, just like all state-passed laws.

Any help would be greatly appreciated.

Thank You in Advance

Keshav Srinivasan

Posted 2013-12-06T05:11:06.453

Reputation: 7 930

1I think you have confused LLC's and a corporation. An LLC is generally privately held by individuals or partners who generally run the company, where a corporation is a company owned by shareholders but run by a board. – SoylentGray – 2013-12-06T16:23:44.493

1Also LLC's limit the financial liability to the losses of the company not to damages that are the result of the decisions. For instance if an LLC built a building and cut corners and the building fell down and hurt of killed people, the people who made the decisions can still be held liable and would not be limited to the investment in the company. But the losses from the business failure that also result are limited to that which was invested in the company. In other words the people who loaned them money are out of luck, but the people hurt are not. – SoylentGray – 2013-12-06T16:27:13.103

"subsidy" implies giving something material taken from yourself, NOT passing laws that benefit someone yet don't cost the government any money. Lowering the tax can be possibly considered a subsidy from a certain point of view. If someone thinks subsidy means passing a law limiting liability, they aren't worth paying attention to based on their complete lack of understanding of what words mean. – user4012 – 2013-12-07T05:54:39.037

As such I'd strongly recommend removing that fallacious argument from an otherwise interesting question. – user4012 – 2013-12-07T05:55:51.247

@DVK Maybe I chose the wrong word "subsidy". That's not necessarily the word people use when making the argument. But the fundamental argument is that limited liability laws constitute a government distortion of the capitalist system in favor of corporations, and the government is entitled to be compensated for tilting the scales. – Keshav Srinivasan – 2013-12-08T00:34:48.577

@KeshavSrinivasan - that's much cleaner and clearer. – user4012 – 2013-12-08T03:43:31.893

3You realize that adding, "Any help would be greatly appreciated. Thank You in Advance." to each and everyone of your questions doesn't help improve it in any way. – user1873 – 2013-12-24T06:48:49.923

@KeshavSrinivasan - Sam I Am's edit was a good one. I'm not sure why you rolled it back. – Bobson – 2013-12-24T14:23:12.627

4@user1873 - actually, adding signatures/thankses is expressly frowned upon in Help section somewhere (I was reading it on a new SE site and saw that as a bullet point). – user4012 – 2013-12-24T18:57:49.743

Answers

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There may be some, but it is not a widely held position for several reasons. For one thing, removing the ability to form limited liability firms would make starting a firm much more risky, because no matter how well your business was planned and how financially sound it is, the owners' necks are always on the line for lawsuits, economic downturns, etc. Not to mention no one would be willing to take business risks, because if their business fails the could lose everything they own to pay off debts. Getting rid of limited liability would also discourage investment, because without it investors are also liable. Finally, even the wildest politician needs funding from somewhere (the "grassroots" funding model is usually a lie), and advocating the removal of limited liability would ensure no corporation (or anyone who understands basic economics) will back them.

user812

Posted 2013-12-06T05:11:06.453

Reputation: 221

But when people are insulated from some of the risks of their decisions, doesn't that create moral hazard? So I don't know whether limited liability is such an ecomomic no-brainer. – Keshav Srinivasan – 2013-12-24T18:09:30.690

1@KeshavSrinivasan - ALL People are insulated from the risks of their decisions. Usually, WITHOUT any attendant social benefits (e.g. rise of investments and standards of living). People are protected from risks by ability to declare bancruptsy instead of going to debtors prison. By getting billions in social aid spending instead of starving because they didn't bother studying hard and obtaining maketable skills so they can have a job. By getting free ER care because they were too lazy to care for their health and too stupid to get catastrophic insurance. – user4012 – 2013-12-24T18:49:19.460

... If you advocate removing moral hazard, it's commendable. But advocating removal of ONLY LL under the guise of "it's moral hazard" is really really hypocritical and wrong. – user4012 – 2013-12-24T18:50:16.293

3It only insulates them as far as it prevents them from losing more money then they put into the investment. If not, imagine you invest $100 in a stock and lose $1000 from it. – user812 – 2013-12-25T01:20:55.080

@DVK That's why I asked about conservatives and libertarians, because they tend to oppose other policies that distort markets and create moral hazard, so it's natural to ask whether any of them oppose limited liability laws. – Keshav Srinivasan – 2013-12-25T13:47:58.297

2@KeshavSrinivasan - that was VERY unclear from the question. You may want to clarify with that point. I'd edit it but am worried about rollback wars :) – user4012 – 2013-12-25T13:49:48.110

@KeshavSrinivasan - your edit wasn't what the comments discussed. "Distortion of free market system" != "removal of moral hazard". I meant edits based on our last couple of comments. – user4012 – 2013-12-25T13:59:53.293

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@DVK, if you examine my edit and SamIAm's edit, it was fairly clear that this was what Keshav's question was about (as Bobson points out as well) But multiple rollbacks by Keshav to the original wording. I guess their is no helping people who don't want to be helped.

– user1873 – 2013-12-25T16:56:21.427