Re: Corporate liability (WAS: Environmentalism in a Free society)

Michael Lorrey (
Mon, 14 Dec 1998 10:25:58 -0500 wrote:

> In a message dated 98-12-13 14:21:53 EST, (Michael Lorrey)
> wrote:
> > Corporations
> > under the current mercatilist/socialist system carry such power to supress
> > information only because the government lets them. In a system where civil
> > law is the means of adjudicating all legal impacts, corporations have no
> > standing as individual parties (whereas under the current system they are
> > considered to be virtual citizens), so the officers and stockholders are
> > individually liable. Operating in this manner would ensure that the
> > stockholders take steps to ensure that the actions of its officers are not
> > placing them in a position of liability.
> I wonder about the implications of what you're proposing here, Mike. Consider
> that shareholder limited liability is one of the key elements supporting a
> secondary market for widely-held equity investment. Who will buy the stock of
> ABC Corp. on the secondary market if before they do they have to engage in a
> complete program of due diligence to be sure that they're not buying into
> personal liability for some then-well-hidden corporate policy? I know I
> wouldn't. Allowing corporations to be sued as legal persons actually benefits
> the plaintiff as much as limited liability benefits the shareholders: I only
> have to sue ABC Corp., not track down all of its (possibly millions of)
> shareholder.

Since a shareholder, when not prevented by the government, has the right to examine all corporate documents, then current technology allows for software driven complete due diligence if all company records are digitized (which can easily be made a standard by PPA polices). Granted that it was much easier in the past for a corporation to hide things, but this is no longer the case.

> A corporation's liability is reflected in its share price, so the market does
> act to discipline equity holders. And intentionally inadequately capitalized
> corporations can lead to "piercing the corporate veil" and thence to personal
> shareholder liability, so shareholders have a keen interest in seeing to it
> that a corporation is sufficiently capitalized to satisfy judgments against
> it. I don't see anything at all inconsistent with radical anarcho-capitalism
> in allowing corporate limited liability and corporate legal personhood.

A corporation's liability is only reflected in its share price insofar as to estimate the outcome of a legal action given that the corporation can afford squads of high priced lawyers and the plaintiff usually can't, thus the estimated outcome is on average going to be in the corporation's favor, thus the true market liability is undervalued in the stock price. Corporate person fiction sheilds the investor from the risk which equates to the returns they are expecting, thus improperly inflating the value of the stock, thus the investors costs are being externalized onto potential plaintiffs against the corporation.

Mike Lorrey