Political Theory

Re: Homeowners, Corporations, and Limited Liability (LL)

Juan — Thu, 16 Jul 2009 01:39:12 GMT

Stephen Forde:
I wonder why Juan, Brainpolice, Wombatron and the rest of the anti-corporate cadre don't respond.

I am not a mutualist.
I have nothing against big businesses IF they are an outcome of the free market.

Many libertarians complain about LL for corporations. They complain that corporations receive several legal privileges from the state, especially LL. Shareholders (owners) are not held personally liable to creditors if the corporation becomes insolvent. The creditors only have a claim to the corporation's assets.

I confess I'm mostly ignorant on the topic, so I don't really know what sort of privilege may limited liability entail.

I do know for instance what kind of privilege a patent is, and how 'corporations' use and abuse that privilege. If you want to call me 'anti-corporate' when I criticize mercantilism, go ahead. It's a strawman anyway.

Why is it that the critics of LL for corporations never criticize LL for any other entity or person ?

I don't know. It's not my case. Now, whatever LL is, it should apply to anyone, according to the principle of "equality before the law", no ?

Re: Homeowners, Corporations, and Limited Liability (LL)

Prelude To Ruin — Thu, 16 Jul 2009 00:54:18 GMT

Stephen Forde:

I've been thinking. Many libertarians complain about LL for corporations. They complain that corporations receive several legal privileges from the state, especially LL. Shareholders (owners) are not held personally liable to creditors if the corporation becomes insolvent. The creditors only have a claim to the corporation's assets.

I don't see a problem with this. The assets of the investors are not the assets of the corporation. Shareholders have made an investment in the company in return for a share of profits, and that's about where their "ownership" ends. They should only be held liable for the amount of their investment. I do see a problem with everybody involved with a company absolving themselves of responsibility for the company's liabilities. Somebody needs to be held accountable, unless of course the contracts with creditors stipulate otherwise (which they quite reasonably could, plenty of people extend credit to corporations knowing about limited liability). Who is to be held accountable is up to the corporation, but it needs to be done.

Stephen Forde:

Now, while they may often object to LL for corporations, they never object to this institution when it is applied to other persons and institutions. Homeowners also have a form of limited liability. When they take out a mortgage to buy a home, the bank only has title to the house as collateral. If a homeowner takes out a loan for $500 000 to buy a house and the market value of the house drops to $200 000 a year later, the homeowner may stop making payments, lose the house and rent, and the bank will have lost $300 000 dollars. The bank is not allowed to go after the home buyer's personal assets.

In fact, in general, any loan where collateral is offered for failure to repay a debt is implicitly a LL loan. The creditor is only able to pursue the assets offered as collateral in the event of a failure to repay the loan.

This is different in that the creditor has agreed to accept the collateral in lieu of payment on the loan. The creditor, of course, does not have rights to the value of the collateral.

Re: Homeowners, Corporations, and Limited Liability (LL)

Stephen — Wed, 15 Jul 2009 23:24:47 GMT

I wonder why Juan, Brainpolice, Wombatron and the rest of the anti-corporate cadre don't respond.

Re: Homeowners, Corporations, and Limited Liability (LL)

DanielMuff — Wed, 15 Jul 2009 17:42:28 GMT

The state also prosecutes murderers. Should we libertarians also be against the prosecution of murderers? No. Limited liability is libertarian.

Homeowners, Corporations, and Limited Liability (LL)

Stephen — Wed, 15 Jul 2009 15:41:39 GMT

I've been thinking. Many libertarians complain about LL for corporations. They complain that corporations receive several legal privileges from the state, especially LL. Shareholders (owners) are not held personally liable to creditors if the corporation becomes insolvent. The creditors only have a claim to the corporation's assets.

Now, while they may often object to LL for corporations, they never object to this institution when it is applied to other persons and institutions. Homeowners also have a form of limited liability. When they take out a mortgage to buy a home, the bank only has title to the house as collateral. If a homeowner takes out a loan for $500 000 to buy a house and the market value of the house drops to $200 000 a year later, the homeowner may stop making payments, lose the house and rent, and the bank will have lost $300 000 dollars. The bank is not allowed to go after the home buyer's personal assets.

In fact, in general, any loan where collateral is offered for failure to repay a debt is implicitly a LL loan. The creditor is only able to pursue the assets offered as collateral in the event of a failure to repay the loan.

Why is it that the critics of LL for corporations never criticize LL for any other entity or person?