I wrote: >> 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.
Somehow my point was missed below, so I'll restate it: the limited liability law means that a corporation is much more than a bunch of voluntary contracts amongst individuals. The power of the state means that the whole is more than the sum of its parts, so that the corporation is a "legal person." (A legal person that's like an actual person in many ways, with the obvious exception with respect to the right to vote. But I doubt that corporations -- especially the bigger ones -- need the power to vote. They dominate government anyway.) David S writes: >... 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.< I didn't say anything about "unfair" or "fair." My thoughts -- not expressed in type -- were about fraud (Enron, etc.) and criminal pollution (Union Carbide in Bhopal, the power company at Three Mile Island, etc.) I'll ignore the "etc." in my original comment. On the latter -- what economists call "external costs" and light-weight economists call "neighborhood effects" -- people were affected by the "accidents" were never involved with voluntary contracts. Union Carbide killed a lot of people who didn't consent to taking that kind of risk. (If anything, the market forces worshiped by self-styled libertarians drive people to take those risks: the poorest people will live where property values are least, which is often near the stinky (and potentially dangerous) factory. So it's the poorest who are most likely to die. (A true libertarian might say that poor people's lives aren't worth as much (on the market) so that it's appropriate in some way.) BTW, not only are external costs a matter of a corporation violating individual freedom, but according to standard economics, it's inefficient.) On the former, if corporate insiders are cooking the books (working with their tame accountants), it may _look_ as if there was some sort of voluntary contract between consenting adults, but one side (or both) is conning the other. Of course, as with the first case, when the matter goes to court (if it ever does), the corporation usually has more resources to hire lawyers, along with friends in high places (as Ken Lay has Dubya and Halliburton's Dick Cheney has Antonin Scalia). >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).< [*] tort (n.) from French for "wrong," a civil wrong or wrongful act, whether intentional or accidental, from which injury occurs to another. Torts include all negligence cases as well as intentional wrongs which result in harm. Therefore tort law is one of the major areas of law (along with contract, real property and criminal law) and results in more civil litigation than any other category. Some intentional torts may also be crimes, such as assault, battery, wrongful death, fraud, conversion (a euphemism for theft) and trespass on property and form the basis for a lawsuit for damages by the injured party. ... [source: law.com's legal dictionary at http://dictionary.law.com/.] Since the corporation has power over the employee (because of the cost of job loss and the ability to deny promotions, etc.), it's only logical that the corporation take responsibility for the actions of the employee. (This is what David calls "respondeat superior" below.) The company says "damn the torpedoes! maximize profits!" and the employees try to impress their "superiors" by cutting costs (or dumping them on others) or by grabbing benefits for the company. It's a bit like the Nuremberg law, in which the officers in the armed forces are responsible for the actions of the enlisted troops, since they give the orders. (NB: I am not an expert on law in any way, so I am willing -- and able -- to be corrected on this and any other legal issue.) > 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).< it's the share-holder's greed -- as organized by stock markets -- that drives the company to accumulate power in order to maximize profit, which in turn puts people outside the company at risk in this situation. Why should the taxpayers pay for the clean-up? why should the neighbors of the company pay for the medical costs of the company's malfeasance? According to limited liability laws, they should (after a point). Even though they never made the decision to act in the way that caused the damage. The limited liability law is a free benefit given to corporations (at their own behest, basically, since they have influenced the courts in their favor since the 19th century), allowing them to shift risk to others. In theory, there is some compensation in that corporations are supposed to pay the corporate income tax. But in practice, that tax is very low and rapidly going away. >As a practical matter, the limited liability is only an issue if the corporation is >rendered insolvent and insurance is exhausted.< which is true in the case of big disasters. But the limited liability law is always in the background, allowing the stockholders to ignore the morality or immortality and the non-financial risk of their financial holdings. The taxpayers are acting as the cost-payers of the last resort, so that corporations don't have do act "without a net." >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.< why? shouldn't those people who hired him -- the stockholders, through their agent, the Exxon corporation -- pay attention to who they hire? Because they're not held responsible, the stock-holders are able to ignore the risks they impose on others (external costs). This encourages corporations in their malfeasance. If stockholders knew ahead of time about their responsibilities, they'd avoid investing in such companies. Only well-behaved corporations would get equity funds. So it makes sense to extend "respondeat superior" to stockholders. Of course, the state has a hard time extending it to even corporate decision-makers a lot fo the time. Example: if Arthur Anderson, LLP hadn't had limited liability protection, the top management (the owners) would have been much more careful in watching the actions of their "agents" in their dealings with Ken Lay and the Enron gang. BTW, along with the limited liability law, respondeat superior means that a corporation is much more than a bunch of voluntary contracts amongst individuals. So that reinforces my initial point. [*] Latin for "let the master answer," a key doctrine in the law of agency, which provides that a principal (employer) is responsible for the actions of his/her/its agent (employee) in the "course of employment." Thus, an agent who signs an agreement to purchase goods for his employer in the name of the employer can create a binding contract between the seller and the employer. Another example: if a delivery truck driver negligently hits a child in the street, the company for which the driver works will be liable for the injuries. [source: http://dictionary.law.com/definition2.asp?selected=1827&bold=%7C%7C%7C%7C ] Jim Devine.
