James Devine writes: >> Is this a different David Shemano, who I thought was a lawyer of some sort? >> Corporations have _limited liability_ which means that that after a certain point >> (the >> amount of capital "invested" by the stock-holders) the state has declared that the >> costs of corporate malfeasance, accidents, etc. shall be absorbed by the taxpayers. >> Jim
Let's be clear about this. The corporate form provides no unfair protection against contractual liability, because the other party is aware of the corporate form and can either bargain for a personal guarantee or not enter into the contract. With respect to tortious liability, the corporate form provides no protection for individuals who commit torts. The only protection the corporate form provides is a modification to the doctrine of respondeat superior (the employer is liable for the acts of the employee who commits an act in the scope of the employment). In other words, while the corporation's assets are liable for the acts of the employee, the shareholder's personal assets are not responsible for the torts committed by an employee, unless the shareholder himsef committed a tort or the shareholder did not respect the corporate form (alter-ego). As a practical matter, the limited liability is only an issue if the corporation is rendered insolvent and insurance is exhausted. Philosophically, the issue is the appropriateness of applying the doctrine of respondeat superior to shareholders. You can characterize limited liability as state imposed, but you also characterize respondeat superior as state imposed as well. There is no inherent reason why a shareholder who owns 10 shares of Exxon should lose his house because Joseph Hazelwood got drunk. Ultimately, the decision is a policy choice over which reasonable minds can differ. David Shemano
