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Don't get me started on limited liability!

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Tue Jan 9th, 2007 at 08:50:44 AM EST
[ Parent ]
Oh go on, you know you want to.
by Colman (colman at eurotrib.com) on Tue Jan 9th, 2007 at 08:54:05 AM EST
[ Parent ]
To me, Limitation of Liability is another "Commons" issue.

The Victorians debated long and hard when it was introduced in the mid Nineteenth Century to allow Companies (which had hitherto been unlimited in liability) this measure of protection.

The trouble is that it's essentially a free ride. Companies (and LLP's, LP's whatever) don't actually give anything back to Society in exchange for it.

It's what biologists call a "semi-permeable membrane" which allows Value through in one direction, but not the other.

Now don't get me wrong: it underpins "Equity" - one of the Twin Peaks of Capitalism and without it we wouldn't be where we are today...which is a double edged statement if ever there were one.

My take on it is that those who have the benefit of Limited Liability should pay something for it - maybe a small share of their GROSS revenues or even production.

That would go some way to redressing the "externalisation of costs" that results from the uninhibited use of Limitation of Liability ie "Capitalism red in tooth and claw".

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Jan 9th, 2007 at 09:12:35 AM EST
[ Parent ]
Corporation tax, in theory, if not in practice? That comes out of the profits before they're distributed to the shareholders.

Actually, for small enterprises the lenders have pretty much eroded limited liability away, in Ireland at least, by insisting upon personal guarantees from the owners/directors for any loans.

by Colman (colman at eurotrib.com) on Tue Jan 9th, 2007 at 09:15:48 AM EST
[ Parent ]
A "limited liability levy" on revenues, before any costs are applied, and collected via a generic clearing system.

Your point about guarantees is well made, and of fairly general application.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Jan 9th, 2007 at 09:52:19 AM EST
[ Parent ]
It's interesting to me that on one hand you don't like lenders demanding repayment from folks who can no longer pay while on the other hand you don't like limited liability.   Seems schizoid.  What am I missing?

Is it the purpose that the loaned funds were used for that leads you to the distinction?

For me, I'd never invest in a company if the investment could lead to me losing more than the original investment.  Not worth the risk.  Into the mattress...

by HiD on Tue Jan 9th, 2007 at 03:07:44 PM EST
[ Parent ]
Did I say I didn't like it?

I've nothing against it at all, rather the reverse - we wouldn't be where we are without it.

BUT it should come with a price.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Jan 9th, 2007 at 05:58:32 PM EST
[ Parent ]
the trouble is that (Limited liability) is essentially a free ride. Companies (and LLP's, LP's whatever) don't actually give anything back to Society in exchange for it.

It's what biologists call a "semi-permeable membrane" which allows Value through in one direction, but not the other.

Society gets the ability to make investments without unlimited risk.  Without the security of knowing you can't lose everything from the result of a small passive investment, no one would invest.  We get the modern world as a result of banding together via investment vehicles.  Now if you don't like the modern world that's a different kettle of fish.

as for one way membranes.  The investor can still lose 100% of the investment.  That stings especially when most stocks don't return much more than 5%/yr (PE of 20).  hardly a one way street as any investor in Krispy Kreme or Enron or CMGI or Webvan can tell you.

by HiD on Tue Jan 9th, 2007 at 03:16:16 PM EST
[ Parent ]
You are absolutely right in your argument for the necessity of limitation of liability. I'm 100% with you.

But you're talking about investment in Companies -which is a pretty crappy way to invest in my opinion.

Companies aren't "the modern world" - they're Victorian nonsense which became obsolete in 2001 when the UK government was blackmailed into the LLP by the accountancy profession.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Jan 9th, 2007 at 06:06:28 PM EST
[ Parent ]
If limited liability is a good thing and has gotten us to where we are today, how can it also be a free ride?  If society benefited, it benefited.

Just to be clear, I don't have a problem with corporate level taxation or fees.  Though I would prefer in the US that we do away with it and then ban all corporate lobbying and political action committees etc as the trade off.  Tax the cash flows to the owners as regular income eliminating capital gains and dividend preferences.

As for corporations vs LLC etc, I don't pretend to understand all the nuance, especially in UK law.  But I really don't see much of a practical difference when it comes to organizing for investment.  The rich and smart will always find or create some way to protect what they already have in hand.  Of course, the rest of us are free not to loan to, invest in or trade with them if we don't like the smell of the risk/reward profile.

by HiD on Tue Jan 9th, 2007 at 06:46:50 PM EST
[ Parent ]

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