Anonymous asked: What are your thoughts on limited liability corporations? From my basic understanding, there are no ethical or moral reasons not to repeal limited liability, only utilitarian reasons. Would love to hear your thoughts!
This is now the most amount of time that I have ever spent thinking about limited liability corporations.
Oh! Tap me in! I’ve got this one.
First, utilitarian reasons are ethical reasons. This is doubly true when it comes to law and policy. This isn’t to say that utilitarian reasons are the only ethical reasons or that or that a utilitarian analysis is particularly special. It’s just that the probable result of any social policy is a morally relevant thing. “This policy will result in a thousand fewer kids having asthma” is certainly a plus in the morality column.
Second, limited corporate liability is really about how bad we expect failure to be. And should you be able to own a small piece of a company without massive risk to everything?
You and some friends start a business building a prototype solar car. You’re responsible for, say, the brakes. That gets you a 2% ownership interest in the company. Your friend Schlozo is responsible for the part that makes the car not explode. The good news is that your brakes work great. The bad news is that Schlozo wasn’t very good at his job. And … some people died. And now their families are suing both Schlozo and the company. Schlozo’s ruined. So is the company. But should you be? Your investment is wiped out. But should you lose your house too?
Or say you and your friends pool resources to start a music sharing service. Let’s call it Crapster. (Because, honestly, it’s 2014. You’re sort of behind the ball on this one.) Anyway, it turns out some people use your service for some copyright violation. And maybe you should have seen it coming. Or maybe not. Either way, the company gets sued for $1,500 for each instance of copyright violation. And were are a million instances. So that sucks for the company. And without limited liability you and your friends are on the hook for $1.5 billion.
There are certainly downsides to limited liability. But the upsides are enormous. Investment is possible. Even if, like me, you’re pretty skeptical of passive income, you can concede that investment can be a very useful thing.