Re: Corporate liability (WAS: Environmentalism in a Free society)
Sun, 17 Jan 1999 10:41:56 EST

In a message dated 99-01-09 22:23:35 EST, Peter C. McCluskey wrote:

> No, you would be perfectly comfortable with equity investments in such a
> legal system [in which shareholders are liable along with the corporation
> in which they hold shares], because you could achieve virtually the same
> risks and rewards
> as under the current system simply by buying equities and simultaneously
> buying
> the corresponding put options with a strike price of zero.

How does this do more than protect your investment in the shares? That's already at risk in the current system, since your equity can be wiped out if the corporation does something really stupid. Without limited liability, ownership of corporate shares would expose my entire net worth. Or am I missing something?

> In practice, most
> people would find they could live with the risks even without buying the
> puts.

I can't speak for most people, but I know it FEELS different to me to invest in a general partnership, where I know I have unlimited personal liability . . .

> If you look carefully enough, you will see that current law assigns more
> liability than most people assume. For example, if a company that pays out
> dividend which later turns out to cause it to default on a debt,
> shareholders
> can be liable (I suspect up to the amount of the dividend). Also, when the
> Bank of United States collapsed in 1930, shareholders were asked to pay
> some money to help pay off depositors (I'm not sure if this was justified
> by dividends that had been paid to shareholders, and at any rate few
> shareholders paid other than those who were depositors and had it deducted
> from their deposits.)

This is true, and I noted it in my initial post in this thread, but it's VERY rare in terms of real public companies. It is much more common in private, closely-held corporations: In my practice, I check into the assets of the principle stockholders of such companies as a standard procedure in the course of litigation, since there's a real risk of such companies being plundered in anticipation of an adverse judgment.

	Greg Burch     <>----<>
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