> Yes, but it is only with respect to non-contractual
> liabilities that the limitation is state imposed.
I disagree. First, a contract is state imposition or
creation. A contract, in law, is a promise the law
will enforce. Second, the limited libaility accorded
corporations is a matter of the corporate form, not of
contract. It is not contracted for, but is a creature
of the legal process of incorporation. Third, there
are lots of kinds of non-contractual, non-tort
liability that incorporation offers limited protection
against.
> The contractual limited liability is, by definition,
> a matter of contract. As I initially said, the
> other party to the contract can bargain for a
> personal guarantee, which is very common.
That has nothing to do with the nature of
incorporation.
>
> I don't disagree, except that if you remove the
> issue of limited liability, a corporation is
> ultimately reducible to a series of contracts, just
> like any other social group.
Not all social groups are contractual and voluntary. I
am not a Jew in virtue of an agreement. Nor is the
working class, etc., or members thereof, (in) that
clas because of a contract.
Moreover, saying "take away limited liability, and a
corpration is just . . . " is to remove the essence of
thing.
The state recognized
> entity (the "corporation") is a way to simpliy the
> transaction costs of these relationships.
Transactions cost analysis has its place in explaining
why the firm/market boundaries fall where they do --
indeed in a planned system, in explaining the
firm/firm boundaries. But you have not said why TCA
explains why some firms are limited liability entities
-- that there are corporations. The obviosu
explnataion is the simple and natural one, that
investors find the limitation of liability an
attractive feature. What is wrong with that view?
I don't claim expertise in this area, and can be
persuaded. I see from a quick persusal; of my limited
library of corprate law that Easterbrook and Fishel
seem to be in your court on the relevance of TCA, and
while I don't defer to them blindly (to say the least)
I recognize that they have real learning in the area,
and I don't. So I will look at what they say and
report back.
> This is not correct. It is possible to have the
> corporate form without limited liability.
Not under any law of which I am aware, though I might
be wrong.
As I said
> before, the limitation of contractual liability can
> be a matter of contract ("I promise to sell you
> widgets, but if I breach the agreement, you agree to
> cap your claim at X."). The ultimate benefit of the
> corporate form is transaction costs -- for a variety
> of reasons, partnerships have major disadvantages
> compared to corporations which are unrelated to
> limited liability. For instance, what happens if
> one of the partners dies or wants to leave the
> partnership? Can one partner bind all the other
> partners? Who has authority to speak on behalf of
> the partnership? The corporate form addresses these
> and other problems in a very effective fashion.
Well, yes. But there are limited liability
partnerships now. I work for one.
>
> >> I don't know why you bring up strict liability --
>
> The point is that owner responsiblity for the acts
> of an employee is strict liability.
Well, that's an interesting idea. A different
interpretation is that if the employee acts as an
agent of the owner, the owner is liable through agency
principles rather than withouta shwoing of fault.
That is, the fault is there -- it was in the agent's
actions, but the principle is responsible. Negligent
horing, supervision, is something different from
responsibility for thetorts of the agent.
> As I was thinking about it, another major
> consequence of the removal of limited liability
> would be to dramatically shrink the size of the
> corporation. In other words, large corporations
> would probably fragment into a multitude of
> independent corporations to ensure that one division
> is not liable for the acts of another division.
No doubt.
I
> suppose that would be a good thing if you are a
> Lefty, because that would decentralize corporate
> power. However, it would significantly increase
> transaction costs.
>
Not all lefties think small is beautiful per se. Small
capital can be more vicious to workers than big
capital, truth be told. The Small Business Assn is
well to the right of the NAM, I think.
Right now this is a big division in VA, where big
capital in the state GOP supports higher taxes because
public services in the state are in the toilet, and
small capital, also in the GOP, is maintaining the
anti-tax faith.
jks
jks
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