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!!!!!!!!!!!!We want Limited Liability- Petition!!!!!!!!!!!!! (Fearless Blue)

Simcountry: Simcountry Bulletin Board  !!!!!!!!!!!!We want Limited Liability- Petition!!!!!!!!!!!!! (Fearless Blue)

Geraint Owens (Fearless Blue)

Tuesday, September 07, 2004 - 11:09 pm Click here to edit this post
I am glad this point has at least raised interest, indeed some of the arguments in support and against my proposal do in fact look at the issues that have taxed business, lawyers and government ever since. (ENRON for example recently).

On the point about debt transfers, I do understand the point, and I have to concede there would have to be safeguards against corporate fraud, (indeed limited liability protection does not exist for fraud normally) for example putting two much debt into a corporation for the purpose of letting it go bankrupt- (as there are in the real world- at least in the jurisdiction I am in). However the example given of putting debts into a subsidiary and cutting it loose is, within limits, a legitimate business tactic and does happen in the real world- what do you think is happening when we see corporate de-mergers, or the formation of "Liability Management Subsidiaries"?

On the point raised by Adam (and granted this may vary from jurisdiction to jurisdiction- but the basic principles were I believe laid down in the State of New York in the 19th Centuary), and it is true that Company Law was designed to protect living breathing persons' assets, but Company Law actually specifies that a "Company is a legal person"- so a corporation is just like me or you in law, a person!!! (It doesn't have the right to vote in public elections, but it can do other stuff that I can do, sign contracts, borrow and lend money, and even set up limited liability companies by sending an application form to Companies House). (Anyone interested look at their website, or your own jurisdiction's Company Registration Authority website.) So "Enterprises" are "Individuals" effectively. (French Company Law is interesting on this, it assumes that in normal curcumstances a company will cease to exist when it reaches 70 years old, just like the Bible says a man should live 3 score years and 10, i.e. 70 years.)

So limited liability is used to protect the assets of artificial persons too, (that's what subsidiary companies are for) an (in)famous example familiar to UK based players would be "ITV Digital" a corporations owned jointly by two large corporations "Granada" and "Carlton", which went bankrupt, and the courts ruled that they could not be held liable for ITV Digital's debts.

Adam's point is nevertheless interesting, because for the reasons he identified, in Britain until the 1930s depression, setting up a limited liability company was regarded as doing something rather sleazy, because it was seen as (and in fact is) a way of getting out of paying your debts. Incorporating would have been regarded by the establishment as something not suitable for Gentlemen, only suitable for the lower middle classes and Americans! Attitudes have now changed, over 4,000,000 Limited Liabilty companies have been formed in England and Wales alone, (since LL was introduced 1870s or 80s?) 1,000,000 in the last 10 years! Not counting Scotland of course.

Basically I think the best mechanism at the end of the day the way we deal with someone blatantly hiving off debts into subsidiries would have to be a market mechanism as identified by david, (as in the real world) but you could do other things, like limit transfers between subsidiaries and the owning country/ Enterprise. That exists in the real world too, in a roundabout way, normally presenting audited accounts to the public authorities, deters such activity.

Basically I do think that at the end of the day Limited Liability is such an integral part of Modern Capitalism it really ought to be in Simcountry. Hardly anyone bothers with Unlimited Liability companies nowadays, which is effectively what we're saddled with in Simcountry, along with all those debts from those failed subsidiaries of mine!!!

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