Stock Without Limited Liability?

Could you have stocks in a truly free market without limited liability?

 

 

Utilizing liability insurance to distribute risk, I think, yes (especially if the frivolous lawsuits that plague the non-free market were not so widespread).

If you like jail…Or else, if you buy the company where the CEO personally gets all the problems, then yes. But else, I don’t think it would fly.

"If you like jail…Or else, if you buy the company where the CEO personally gets all the problems, then yes. But else, I don’t think it would fly."

I think you're right...actually the question i should have asked is....could a corporation exist in a truly free market?  where if the corporation is in trouble...the ceo and owner's personal assets are excluded....the answer is probably not...

they would not be excluded in a free market....why should they be?

Well, that’s complicated and I’m afraid it would depend on the situation at hand. I can imagine that some CEO contracts and company  stocks  would stipulate that the shareholders assumes full responsibility for the actions of the firm.

Others could well go on to state that shareholders assume responsibility only for the decisions of the assembly, or even nothing at all! Thus you’d still get limited liability.

If no such stipulation where made, I believe that in practice most of the times the fault would be found to be the CEO’s, at least where direct fault (an unlawful action) is at stake. Where it’s a matter of negligence, its murkier. Who is to be held liable for BP’s screw up? Ultimately I think shareholders (unlimited liability). In some other case of very gross and well known mismanagement, say dumping waste on a lake for years, it would boil down to management. So, it would depend on the situation at hand.   

limitgov:

truly free market without limited liability?

 

I smell a contradiction.

You need to read Stephan Kinsella on this one, he has written alot on this topic. See here, and here, and there are a few more.

Ultimately, yes corporations could exist. From a debt liability standpoint limited liability could easily be written into contracts, and is a non issue from a libertarian perspective.

The tough part comes when we start talking about corporate negligence and who should be liable for the torts commited by the employees.  Kinsella makes alot of arguements for each side of the debate but never really draws a full conclusion. 

Rothbard said corporations should never be held liable only the employees themselves, but Han Hoppe has a pretty good critique of Rothbard's interpretation of causaility, which could be applied to corporate liability in my opinion. See here.

My belief is that by applying the principle of causation (as hoppe presents it), it is legitimate to say that an owner of the corporation caused the tort because if the employee wasn't directed to commit the action, the tort would not have been committed.

This is hard to swallow, however, when you think about a person owning stocks in a 401k and being sued for liability, when clearly this person did not direct the action that led to the tort.  However, I would say the "ownership" of the company did direct the action, of which investors contractually agree to be part and agree on how to control the company when they purchase the stock.  If this is a problem for investors, the firm could easily purchase liability insurance.

Ultimately, this is a fuzzy area of libertarianism and is something I think needs to be flushed out more, but certainly state granted limited liability should not exist. 

why does the average person want to buy stocks?

to sell them at a higher price to make money?

to recieve dividends?

could they not sell stocks, where you don't own any owernship in the company but still recieve these things?

The idea behind the stock market is to facilitate at most the transfer of capital from those industries that pay to those that don’t. Falling or rising stock prices are a clear signal that it would be wise or unwise to invest in a company. Thus the job of the entrepreneur is facilitated to the outmost. But we must se that without any actual transfer of property titles, no capital could ever be transferred and the whole thing would be meaningless.

 

"The idea behind the stock market is to facilitate at most the transfer of capital from those industries that pay to those that don’t. Falling or rising stock prices are a clear signal that it would be wise or unwise to invest in a company. Thus the job of the entrepreneur is facilitated to the outmost. But we must se that without any actual transfer of property titles, no capital could ever be transferred and the whole thing would be meaningless."

 

Why couldn't stocks give you dividends without giving you ownership?

 

Why couldn't stocks give you dividends without giving you ownership?

And what would you give the company to get back dividends?

"And what would you give the company to get back dividends?"

nothing...the dividends would be your compensation for buying the stock.

So, if I’m getting this straight, you’re proposing a loan to the company which has no set terms of repayment: it only gets repaid for as long as and as much as the management feels like paying. I don’t think it would fly.  

Now, if I’m an original shareholder I can sell to you the dividend my amount of shares will produce for some sum. Like this I remain a shareholder and you get the dividend. But you miss the capital gain one gets when the price of shares goes up. That is, in practice, what most people are looking for in the stock market. To tap that you’d need to actually own the share.

Now every capital gain is but the reflection of the fact that the company is doing well. Why would anyone but the owner reap the gains of a company doing well?

So, in practice dividends can be, and I believe they are, sold apart, but I cannot see how one could allow for shares that do not transfer ownership.

It will have to be tacked by the CEO making every conceivable decision, and hence assuming all fault. This, of course, means that shareholders would be unable to discharge the guy. No board, no assembly, no crap like that: just the CEO and his company. You buy the CEO as much as you buy the business. Perhaps like this it could, work.

limitgov:

Could you have stocks in a truly free market without limited liability?

I believe that you could. A stock is just a share of a company. You can buy a share of a company from someone else. Obviously, one would be jointly responsible for that company, and so had better do some real research into the viability of the company, and importantly the trustworthy-ness of ones co-owners. One would therefore be a fool to own small stakes in hundreds or thousands of companies as people do now. The moral character, the uprightness, the integrity of ones partners will become of paramount concern. So, the answer is yes, and there could be a stock market selling these shares, but the huge volume of trading that we see now would go once limited liability went.

This is what Primes and Scores do in the stock market.  They are financial instruments that separate the capital gain from the dividend and sell each off as a separate derivative.

Unfortunately, the government cracked down on primes and scores because there was some kind of tax loophole attributed to them....so that ended that.

But actually it was a pretty cool derivative, they actually found that the total value of the prime and scores was more than the underlying stock.  This was atrributed to the fact that some people value captial gains more and other dividends more, and this allowed them to buy exactly what they want.

What if the whole world was a corporation and everyone owned one six billionth?

Liabilies cannot be justly limited, but they can be insured. That is as true for shares issued by a firm on the stock market as it is for cars, houses, and any service you can think of.

Some shareholders, let's say preferred shareholders, could bear the liability on behalf of others.