From: baker@Xenon.Stanford.EDU (Andrew Baker)
Subject: Re: Corporations (Was: Why vote Libertarian?)
Organization: Computer Science Department, Stanford University.
Distribution: usa,local
Date: Tue, 7 Apr 1992 03:33:55 GMT


In article <visser.702600386@convex.convex.com> visser@convex.com (Lance Visser) writes:
>In <1992Apr6.190958.27793@Princeton.EDU> niepornt@phoenix.Princeton.EDU (David Marc Nieporent) writes:
>+>Which brings up a question I've had, which I hope the net.libs can
>+>answer.  What's the Libertarian position on incorporation?  
>+>As far as I
>+>can see, a true Lib should oppose the concept; a company is a bunch of
>+>people getting together to do something, not a government defined person.
>+>Incorporation prevents accountability; in the example someone gave about
>+>a factory which leaks carcinogens, they pointed out that the EPA limits
>+>liability, but that without it, the company would have incentive to NOT
>+>pollute.  But as long as you have corporations, in which they can declare 
>+>bankruptcy if too many people sue them, and in which the executives are 
>+>not responsible, then Libertarian liability-accountability doesn't work.
>
>	Well, I would like to hear what libs think of the following 
>changes:
>
>	1. Shareholders are directly liable for actions of the company.
>	Shareholders will function as the "deep pockets" for corporations 
>	who cannot meet their obligations.  Shareholders who, for example
>	held the stock for any period of time while a company was
>	polluting (for example) a river, would be liable.....not just
>	the "current" set of shareholders.
>
>	2. For all companies, public or private, there is no such thing
>	as limited liability for owners, officers or directors.

Both of these proposals would defeat the whole purpose of having a corporation,
and would make it extremely difficult to raise money for any large-scale
undertaking.  Suppose you bought one share of a corporation's stock; how
would you like it if you not only lost your investment, but you also
had your life savings seized just because you happen to have deep pockets?!

I think it is best not to think of limited liability as a special privilege
that is only granted to corporations, but rather as an implicit contract:
if you loan money to a corporation (or engage in some other contractual
act with the corporation), then you are agreeing in advance that only
the corporate assets can be seized in case of default.  You are free to
refuse to deal with a corporation whose financial condition you regard as
flimsy, or alternatively, you might only deal with them provided they had
an outside cosigner.  So in this case, a corporation really isn't getting
anything for free; a partnership could do the same thing, but the terms
would have to be explicitly agreed upon by all the parties.

The case of pollution and other torts is a bit more troubling because the
people who are harmed may be people who never wanted to deal with the
corporation in the first place.  Still, it would be disasterous to go
after arbitrary shareholders.  If the corporation goes broke, it might be ok
to go after company officers or shareholders who were really involved in
running the company, but going after "silent" shareholders makes as
much sense as going after creditors (after all, they both provided capital --
they just have different mechanisms for receiving their share of the
profits).

If it seems that a corporation is likely to create a disaster that it won't
be able to pay for, then the government should try to stop it in advance,
or require it to buy insurance or something like that.  But here again,
this isn't peculiar to corporations; it applies to individuals and
partnerships as well.








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