> which means that every partner could be held liable to an unlimited amount for anything any partner (or the partnership) did.
Technically I believe there's an exception for things that are very clearly the responsibility of a single partner (i.e. done without anyone else's knowledge or consent).
> It’s not obviously a bad thing
Disagree. We've seen a huge surge in accounting scandals since these accounting firms became limited-liability; the field has become dominated by these "too big to fail" companies who make massive profits while paying tiny penalties for their wrongdoing.
> Lloyd’s underwriters (used to?) have unlimited liability. I can’t think of other examples.
I believe there's a New York commercial law firm that's still structured as a traditional partnership.
> I feel like they don’t scale well to large organisations.
> The EY point is interesting. I'm not sure if it's still this way, but when I worked there, a lot of care was put on audit clients as the partner(s) signing off the work had effectively unlimited liability, and could lose pretty much all their money in a worst case scenario.
Does it ever pan out the way? I'm speaking of the liability on the partners. There have been a number of these in recent times involve pretty much all of the big firms.
> Limited liability is a legal status in which a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a corporation, company or partnership.
> I feel like if they have the legal power to do things on your behalf, then you have to be legally liable if they screw something up.
just take a page out of corporations' way of doing things, and use a limited liability entity for everything. You get the benefits, but is not legally liable.
>Why should individuals not in general be liable for the choices they make?
To quote: "You're playing an excluded middle"
Investor invests in building. Lightning burns it down. Should that investor be legally liable for their entire worth, or just the value invested?
There is some medium ground between being liable without bound and not having any liability whatsoever. Limited Liability Corporations are just that - you can be held liable beyond the LLC if you do illegal things. But the limitation is to be liable for only the assets relevant to the business. This seems perfectly like a reasonable middle ground.
And it's listed often as one of the best inventions enabling a modern economy [2]."To the economist the
concept is essential, for without limited liability capital acquisition would be difficult indeed." [3] The historical evidence is that limited liability corporations enabled using excess capital far more efficiently than previously, which is why pretty much every country in the world has adopted it. It was clear early on that those countries not adopting it were falling behind economically.
>Even without limited liability, those with assets will assume risks if the potential returns are commensurate. Always have, always will.
Before limited liability, unlimited liability was the norm. If a merchant invested some of his profits in a ship, and the ship sank, then those with cargo on the ship could sue the merchant for all the merchant was worth, far surpassing the value the cargo was worth. This disincentivized merchants investing.
So yes, investors invest commensurate with the risk. If the risk goes up, they invest less. This was the norm. Excess capital was not being used for fear of losing not only that capital but all capital.
The Dutch invented limited liability in the 1600s in order to tap this unused capital. " The innovation in the case of the VOC was that the liability of not just the participanten but also of the bewindhebbers was limited to the paid-in capital (usually, bewindhebbers had unlimited liability). The VOC therefore was a limited liability company" [1]
This proved so successful economically that all neighboring nations adopted it soon thereafter, enabling a boom in shipping.
Now, back to mortgages, etc. Mortgages are lent by banks (more or less). Before limited liability, the bank was owned by one or more people, and they were liable for any business deals they got involved in that went wrong, and not just for the amount invested in the business, but for all their assets. If they lent a mortgage, and something was wrong, even by acts of God, then the bank and any shareholders could be sued for everything - their entire set of assets, their houses, and even their families houses.
If you don't see how this disincentivises investment or risk taking, then I don't know how else to explain it. I'm far more likely to invest $100 if I know I'll at most lost $100. If I'm possibly liable for $1,000,000, I'm not likely to ever invest that $100.
> Even without limited liability, those with assets will assume risks if the potential returns are commensurate. Always have, always will.
We agree on that. When the risks are tremendous, there will be less investment. And this is historical fact.
> Actually, the situation i long for is before the creation of the LLC, where shareholders were responsible for paying for the corporations lawsuits. LLCs are fairly recent invention, and also one that hurt consumers a lot.
Er, what? Shareholders are not responsible for paying corporate liabilities (except in rare circumstances where the corporate form is part of a fraud). The creation of the LLC as a new form of business changed nothing in this regard.
> Enforcement will be the interesting part. If a DAO has anonymous members and no LLC or corporate structure associated with it, then a court can rule that the members are liable, but it could be very difficult to enforce that liability.
The default form of legal structure for a cooperating group of people is general partnership--unless you take specific legal steps to avoid forming a general partnership, that is how the courts will view the partnership. General partnerships means that all partners are jointly and severally liable.
In layman's terms, that means you just have to find one person involved in the DAO, and sue them, and then you get to collect the full judgement from that person (alone), and it's now their problem to get cooperation from the other partners for the liability.
(If this sounds like a terrible idea, it is. That's why there exists all sorts of fancy legal structures that avoid putting people in this position. But if you're not going to use any of them, you get the terrible idea instead!)
Implying that individual people can keep up with legalese written in an intentionally misleading way by teams of lawyers is crazy. Especially when seemingly every single company and sale is treated like that.
It is effectively impossible for an average person to understand every agreement you need to make to be part of modern society, and that is by design of the companies
> Especially, if you registered a company to make sure you're not personally liable for data protect breaches.
And that's your mistake right here. A limited liability structure never protected you against wilfully breaking the law, or being criminally negligent, not when it came to murder, and not when it came to data protection. Just ask any engineer who signed off on a design that later turned out to be insufficient according to specification.
Data protection criminal charges used to be levied against random people within the company - and now they are focussed on the data protection officer (who criminally neglectfully abandoned their function if there is a breach).
If you are still confused about this concept, before you do more in the business structure world, it might be a good idea to talk to a lawyer and make them explain the difference to you.
> > those single member LLCs may be surprised to find the assets of their single member LLC at risk for their personal liabilities
> Not to discount that but aren't LLCs usually formed to avoid personal liability for company liabilities?
That’s officially why they’re formed, but that doesn’t mean they provide what the owner expects.
Years ago, when I was a bank teller, I noticed that one of our clients — a CPA — had not incorporated her business, or set up an LLC, LLP, etc. She mentioned that the limited liability wasn’t absolute; people are often able to pierce the veil ( http://lawprofessors.typepad.com/business_law/2017/11/no-nee... ), so she wasn’t convinced it was worth the trouble. I found out later that courts are willing to pierce the veil in cases that don’t make sense (often, the courts pierce the veil for contract lawsuits where the injured party failed to write in the contract that the LLC’s owners would personally guarantee the performance, but if a car owned by an LLC was in an accident, courts would respect the limited liability; this seems backward since the victim of the accident didn’t pass up a chance to get the owner to personally take liability: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=236967 ).
> Perhaps a rule that anyone in a decisionmaking position who earned over $1m total comp last year is partially liable for fines against the company?
Limited liability is almost always irrelevant to megacorps, because they're large enough that any given liability doesn't actually bankrupt them. Which also means that managers in a company that size would still expect it to never happen and it wouldn't impact their behavior, and they would just carry insurance against it anyway.
On top of that, it doesn't even really help the victims, because if you have a claim which can bankrupt a $100B corporation, the few million in additional assets you could get from the managers is a rounding error.
If you're really trying to affect behavior, criminal penalties for the managers would tend to be more effective, but they also tend to already exist in cases of malice rather than negligence. Negligence tends to be punished with financial penalties rather than prison, and then we're back to the money getting paid by the corporation itself or insurance.
> Small businesses and solo-entrepreneurs have to deal with liability and permits all the time in other fields,
In other fields there is a direct relation between number of customers and liability.
But if i offer free software and also offer commercial support for it, and because of that i would be liable to everyone who uses that software, not just to those who pay for commercial support, then there is no relation between number of customers and liability, and liability cannot be really priced-in.
> that's the whole point of having a limited liability corporation
If your argument is that “there’s nothing we can do about this without completely abolishing LLCs” then that strikes me as somewhat absurd.
The limited liability privilege that exists today does not in any way make you immune from prosecution if your actions are criminal. Sam Bankman-Fried is one obvious example.
Whether CEOs should “suffer” or not depends entirely on whether they have broken the law, not whether they are leading an LLC.
> which is effectively just an illegal way to build a corporation and sell stock.
It would appear that the court is taking the position that it's not an illegal way to create an corporation, but rather a perfectly legal way to create a general partnership with unlimited liability :D
I especially like how they intentionally terminated the LLC that would have protected them.
> If the LLC members personally guarantee performance, piercing the veil isn't involved (because they are personally liable ab initio.)
I agree. That’s half my point: why set up an LLC if every bank and company you deal with has you personally accept liability anyway?
> If they don't, standard analysis of both the way the company is operated is done, the same as would occur with a noncontract liability where veil-piercing is sought.
That’s how it’s supposed to work, yes.
> So, it's certainly possible for the veil to be pierced in a contract case but not an auto accident liability case, but it's just as possible the other way around. The features you've specified and intuited are the basis for the decision to pierce the veil.
I’m not the one doing the intuiting; it was one of UCLA’s corporate law professors. I will acknowledge that his proposal is twenty years old, and the “intuition aspect” is based on whether the approaches used by various states actually achieve the expected policy outcome. That is, if the courts don’t decide whether to pierce the veil based on questions like “is this simply an attempt to get another bite at the apple?” then it’s hardly a surprise that many attempts to get a second bite at the apple succeed. And if the question of whether I can personally sue the owner of a pizza restaurant or have to live with the restaurant’s limited liability is based on whether he has copies of the minutes from his formal board meetings, it’s likely that the decision to pierce or not to pierce won’t actually advance the desired policies.
>> It's Limited Liability in it's purest, most distilled form.
I didn't say what should happen. The company is just publicly waffling about it's own behavior. I find that annoying is all even if it's kind of expected.
Limited Liability is a double-edged sword. It does reduce the risk of starting a company. But it reduces some mechanisms to protect society from misbehaving companies.
> US corporate law makes it hard to really know who owns or benefits from Lodsys' lawsuits
As the director of a UK company every time I here this I am simply flabbergasted. In the UK all limited companies/partnerships accounts are a matter of public record.
> And the idea that a contract can be broken, to the detriment of one side, due to the actions of a third party that neither has control over, and that the contract isn't primarily about, seems highly suspect.
Isn't this actually an incredibly important part of every contract? Surely I would want any contract I'm part of to be clear about what happens if one of the relevant parties gets injured, or is unable to fulfill their obligations due to any reason beyond their control.
Technically I believe there's an exception for things that are very clearly the responsibility of a single partner (i.e. done without anyone else's knowledge or consent).
> It’s not obviously a bad thing
Disagree. We've seen a huge surge in accounting scandals since these accounting firms became limited-liability; the field has become dominated by these "too big to fail" companies who make massive profits while paying tiny penalties for their wrongdoing.
> Lloyd’s underwriters (used to?) have unlimited liability. I can’t think of other examples.
I believe there's a New York commercial law firm that's still structured as a traditional partnership.
> I feel like they don’t scale well to large organisations.
Maybe that's a feature rather than a bug.
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