Limited liability needs to go

[teamosil]

In my view, one of the core problems with the way our economy works is the concept of limited liability.

Corporations, LLCs and LLPs have what is called "limited liability". This means that the owners are not accountable for the debts of the company. If 10 people start a corporation and the corporation borrows $100 and burns it, the creditor can't go after those 10 people to get it back. Now, in that scenario, it's not so bad. Whoever loaned money to the corporation knew that it had limited liability and decided to take that risk. Banks have the ability to require access to the books of the corporation, they can perform audits, and so on. I have no real issue with that if it loses on a bet it consciously decided to enter into knowing the risks. But, that isn't true of other types of debts. For example, the employees might be owed salaries or expense reimbursements and they do not have the ability to review the books of the corporation before deciding to work for or acquire expenses on behalf of the corporation. Vendors that sell things to the corporation generally don't have access to that kind of information either. Worse yet, the victims of torts committed by the corporation never even necessarily decided to enter into a relationship with the corporation at all. For example, if a corporation down the street from you dumps a chemical in the water that gives you cancer, the corporation can just declare bankruptcy and you're out of luck. You can never collect from the people who own that corporation. People use it as a shield to dodge responsibility for their actions and to foist their risks on to the general public.

For example, Exxon is not actually just one corporation, it is many, many, corporations. Each oil tanker or oil rig or pipeline might be operated by a different corporation. Exxon might own one corporation that runs all of its oil tanking operations and that corporation might own 50 different corporations each of which operates a single oil tanker. So, when a tanker runs aground and does $15 billion worth of damage it can just declare the corporation that operated that one tanker to be bankrupt and walk away from the bill.

It also creates a "moral hazard". Corporate owners collect the winnings of a corporation, but not its losses. So, say you take $1,000 and start a corporation with it. Somebody comes up with an opportunity where you have a 50% chance of making $10,000 and a 50% chance of losing $100,000. Obviously the sensible thing would be not to take that bet, right? Your potential losses are 10 times as big as your potential winnings. But if you have limited liability, instead of losing $100,000, you are only actually risking the $1,000 you invested, so you would take that bet. Your potential winnings personally are 10 times as big as your potential losses. Alternately, if somebody proposed an arrangement where the corporation would make $10,000 next year but then it would lose $100,000 the year after that, you would take that plan, pay the $10,000 out as dividends, then declare bankruptcy. You would be up $10,000, but the corporation would impose $100,000 of debts on the public.

This is not just some theoretical issue, this happens many times every single day. Donald Trump, for example, is fabulously wealthy but he has actually lost far more money than he has made in his life. It is just that he hasn't been held responsible for the losses because of limited liability. He has foisted his losses on to the rest of the world and kept the winnings to himself. The big investment banks do it constantly. For example, they all have corporations that they own which have virtually no assets that they use to do all the legally questionable stuff like releasing prospectuses that contain dishonest information. When they get caught, they just declare that shell corporation bankrupt, set up a new one, and lose nothing. Limited liability fosters irresponsibility up and down the ladder and pushes costs from the rich to the rest of us. When a corporation declares bankruptcy it is imposing its costs on every one of us. It stiffs employees and landlords and banks and insurance companies and victims and everybody else and those losses get baked into everything we do.

In theory you can "pierce the corporate veil", but in reality it is incredibly rare that a case will be so egregious that a court will allow it.

We need to end limited liability. The owners of corporations and the other business forms that enjoy limited liability need to be held accountable for their actions. It would lead to a far more responsible business sector and it would stem the flow of money from the middle class to the rich.

 

[Hicup]

Well, I agree and disagree. I agree that LLC companies can be fronts and open to corruption, but so too can many other ventures. The idea behind LLC is to have a low risk way for the common investor to begin a new business, and thus spur growth in a the private sector. Also, LLC's can't trade publicly IIRC. Also, if an LLC goes under, it isn't fair to say that they lose nothing. They do lose..


Tim-

 

[Albert Di Salvo]

What would be the impact of ending limited liability on the creation of new jobs?

 

[teamosil]

Well, I agree and disagree. I agree that LLC companies can be fronts and open to corruption, but so too can many other ventures. The idea behind LLC is to have a low risk way for the common investor to begin a new business, and thus spur growth in a the private sector. Also, LLC's can't trade publicly IIRC. Also, if an LLC goes under, it isn't fair to say that they lose nothing. They do lose..


Tim-

Yeah, that's true that LLCs can't trade publicly. Only corporations can.

When an LLC goes under they take some of the losses, but not all. For example, if they invested $1,000 and the LLC lost $5,000, then they lose $1,000 and the general public loses $4,000. If they get 100% of the upside, why shouldn't they also get 100% of the risk?

By creating a low risk solution for the owner of the corporation or LLC or whatever we aren't reducing the total risk in the economy somehow, we're just moving it from the owner to others. If you give a sandwich shop limited liability, it is true that you make it more likely that people will open up sandwich shops because it is less risky, but you make it less likely that people will open up bread and deli slice stores because they are made riskier.

 

[teamosil]

What would be the impact of ending limited liability on the creation of new jobs?

Probably nothing. All it really does is shift risk around. When the owners of a corporation let it go bankrupt to ditch their obligations that may well mean that the vendors that supplied it also get brought down for example, where maybe they would have survived had they been able to collect from those owners.

 

[Hicup]

Yeah, that's true that LLCs can't trade publicly. Only corporations can.

When an LLC goes under they take some of the losses, but not all. For example, if they invested $1,000 and the LLC lost $5,000, then they lose $1,000 and the general public loses $4,000. If they get 100% of the upside, why shouldn't they also get 100% of the risk?

By creating a low risk solution for the owner of the corporation or LLC or whatever we aren't reducing the total risk in the economy somehow, we're just moving it from the owner to others. If you give a sandwich shop limited liability, it is true that you make it more likely that people will open up sandwich shops because it is less risky, but you make it less likely that people will open up bread and deli slice stores because they are made riskier.

I'd nit-pik on some of the details about risk/reward to the economy, and who suffers in the long term, but I DO see your point. I'm just saying that a Mom and Pop would have a better incentive to venture a new business with LLC's than without them, IMO. Damn it's tough enough as it is trying to open a new business with all the rules and regulations let alone coming up with the cash to do it in the first place. Also, to my understanding, and depending on the type of business, some LLC's actually have to carry more insurance than other types of businesses. Furthermore, in bankruptcy, the owner or owners of an LLC are subject to civil litigation if certain evidenciary burdens can be met, so they're not entirely off the hook.

Tim-

 

[teamosil]

I'd nit-pik on some of the details about risk/reward to the economy, and who suffers in the long term, but I DO see your point. I'm just saying that a Mom and Pop would have a better incentive to venture a new business with LLC's than without them, IMO. Damn it's tough enough as it is trying to open a new business with all the rules and regulations let alone coming up with the cash to do it in the first place. Also, to my understanding, and depending on the type of business, some LLC's actually have to carry more insurance than other types of businesses. Furthermore, in bankruptcy, the owner or owners of an LLC are subject to civil litigation if certain evidenciary burdens can be met, so they're not entirely off the hook.

Tim-

Yeah. It's true that LLCs and LLPs are more accountable than corporations. Corporations are my main beef. And most of all, corporations that own other corporations that they basically just use as liability shields.

 

[Albert Di Salvo]

Probably nothing. All it really does is shift risk around. When the owners of a corporation let it go bankrupt to ditch their obligations that may well mean that the vendors that supplied it also get brought down for example, where maybe they would have survived had they been able to collect from those owners.

Well, I guess you got a point. Capitalism is a means to an end rather than an end in and of itself. The ways in which capitalism works may have to be reworked. This is something I would have to think about.

 

[justabubba]

In my view, one of the core problems with the way our economy works is the concept of limited liability.

this is actually an impetus to an expanding economy
the investor can invest with his risk not exceeding his investment
if that were not possible, he would have to closely monitor the activities of the company to assure that contingent liabilities did not result in excess of his actual capital investment
that need to spend time and effort to avoid any 'what ifs' is not cost effective - in my never humble opinion

Corporations, LLCs and LLPs have what is called "limited liability". This means that the owners are not accountable for the debts of the company. If 10 people start a corporation and the corporation borrows $100 and burns it, the creditor can't go after those 10 people to get it back. Now, in that scenario, it's not so bad. Whoever loaned money to the corporation knew that it had limited liability and decided to take that risk. Banks have the ability to require access to the books of the corporation, they can perform audits, and so on. I have no real issue with that if it loses on a bet it consciously decided to enter into knowing the risks.

with you on this

But, that isn't true of other types of debts. For example, the employees might be owed salaries or expense reimbursements and they do not have the ability to review the books of the corporation before deciding to work for or acquire expenses on behalf of the corporation.

nothing prevents the prospective employee from asking for the books. tho few do, because they realize it could undermine their efforts to secure the job they are seeking. that is a risk-reward calculation they make
further, if the business files for bankruptcy, the unpaid salaries will be treated preferentially

Vendors that sell things to the corporation generally don't have access to that kind of information either.

shame on the vendor for failing to vet the prospective customer when extending them credit
that is a weak business practice. a short cut, and not deserving of your proposed solution

Worse yet, the victims of torts committed by the corporation never even necessarily decided to enter into a relationship with the corporation at all. For example, if a corporation down the street from you dumps a chemical in the water that gives you cancer, the corporation can just declare bankruptcy and you're out of luck. You can never collect from the people who own that corporation. People use it as a shield to dodge responsibility for their actions and to foist their risks on to the general public.

and here is where the corporate veil needs to be pierced

For example, Exxon is not actually just one corporation, it is many, many, corporations. Each oil tanker or oil rig or pipeline might be operated by a different corporation. Exxon might own one corporation that runs all of its oil tanking operations and that corporation might own 50 different corporations each of which operates a single oil tanker. So, when a tanker runs aground and does $15 billion worth of damage it can just declare the corporation that operated that one tanker to be bankrupt and walk away from the bill.

is this not the opposite of what happened in the gulf of mexico incident?
as i recall, the principal company had to pony up a fund to assure the clean up would occur and any victims of that incident would be made whole

It also creates a "moral hazard". Corporate owners collect the winnings of a corporation, but not its losses. So, say you take $1,000 and start a corporation with it. Somebody comes up with an opportunity where you have a 50% chance of making $10,000 and a 50% chance of losing $100,000. Obviously the sensible thing would be not to take that bet, right? Your potential losses are 10 times as big as your potential winnings. But if you have limited liability, instead of losing $100,000, you are only actually risking the $1,000 you invested, so you would take that bet. Your potential winnings personally are 10 times as big as your potential losses. Alternately, if somebody proposed an arrangement where the corporation would make $10,000 next year but then it would lose $100,000 the year after that, you would take that plan, pay the $10,000 out as dividends, then declare bankruptcy. You would be up $10,000, but the corporation would impose $100,000 of debts on the public.

you have crafted a strawman to attack
we know nothing of the nature of the risk causing the company to sustain a $100,000 loss
what entity is enabled such loss to result? we don't know. your strawman story did not explain that essential aspect of the prospective scenario

This is not just some theoretical issue, this happens many times every single day. Donald Trump, for example, is fabulously wealthy but he has actually lost far more money than he has made in his life. It is just that he hasn't been held responsible for the losses because of limited liability. He has foisted his losses on to the rest of the world and kept the winnings to himself.

the donald preys on stupid people
he entices them to make poor investments
they fail to investigate the investment proposal beyond that polished trump veneer
if they did, they would flee, recognizing they are soon to be fleeced should they invest
stupid people and their money are soon parted - by those like the donald
that's why they will soon be both stupid and poor

The big investment banks do it constantly. For example, they all have corporations that they own which have virtually no assets that they use to do all the legally questionable stuff like releasing prospectuses that contain dishonest information. When they get caught, they just declare that shell corporation bankrupt, set up a new one, and lose nothing.

if they do it constantly, it should not be difficult for you to point out one or more obvious examples

and i do recognize that many bankers are stupid. and if they are greedy and stupid, then they are easy prey for unscrupulous con men/business principals

Limited liability fosters irresponsibility up and down the ladder and pushes costs from the rich to the rest of us.

nope
it pushes its costs upon those who made bad investments

When a corporation declares bankruptcy it is imposing its costs on every one of us.

other than the taxpayer having to incur the expense of the bankruptcy court, no, it does not

It stiffs employees and landlords and banks and insurance companies and victims and everybody else and those losses get baked into everything we do.

the employees will be treated with priority in bankruptcy. normally, the assets will be used to first cover their unpaid monies
the landlords had the opportunity to research the financials and any other aspect of the prospective tenant prior to extending them credit in the form of rents
similarly, the insurance companies are in the business of evaluating risk. it's what they do. shame on them for making a bad investment
notice that the common person is not impacted by the losses sustained thru bankruptcy

In theory you can "pierce the corporate veil", but in reality it is incredibly rare that a case will be so egregious that a court will allow it.

did it numerous times. usually in bankruptcy actions, but not exclusively
also made sure trump sustained losses rather than the taxpayer in his bellagio investment - mention that only because trump's actions in particular had been noted

We need to end limited liability. The owners of corporations and the other business forms that enjoy limited liability need to be held accountable for their actions.

NO need to end limited liability. we differentiate general partners from limited partners only to allow the passive investor (limited partner) to know their risk will not exceed the amount of their capital investment
the corporations and their principals are held accountable for their actions
IF the entities that invest and/or extend credit to them take prudent action to secure their risk once made, after first properly assuring the entity is a solid credit risk, there would be no reason to contemplate your proposal. the fault lies with the investors, and their failure to quality their investments

It would lead to a far more responsible business sector and it would stem the flow of money from the middle class to the rich.

it would do none of this
primarily because the middle class is not adversely impacted by their actions

you have crafted a solution in search of a problem

 

[washunut]

Probably nothing. All it really does is shift risk around. When the owners of a corporation let it go bankrupt to ditch their obligations that may well mean that the vendors that supplied it also get brought down for example, where maybe they would have survived had they been able to collect from those owners.

seems to understand the problem asked. There is a great probability that it would hurt start up of new businesses. If people are risking not only the funds they put into a business but everything that their family owns is on the hook, there will likely be less ( common sense) start ups.

This would be something that trial lawyers would push and grow their income. So this could be something we may here from the democrats down the road.

 

[teamosil]

this is actually an impetus to an expanding economy
the investor can invest with his risk not exceeding his investment
if that were not possible, he would have to closely monitor the activities of the company to assure that contingent liabilities did not result in excess of his actual capital investment
that need to spend time and effort to avoid any 'what ifs' is not cost effective - in my never humble opinion

nothing prevents the prospective employee from asking for the books. tho few do, because they realize it could undermine their efforts to secure the job they are seeking. that is a risk-reward calculation they make
further, if the business files for bankruptcy, the unpaid salaries will be treated preferentially

shame on the vendor for failing to vet the prospective customer when extending them credit
that is a weak business practice. a short cut, and not deserving of your proposed solution

So what you're basically saying is that employees and vendors should expend the effort to track the risk profile of the corporations they work for, but that would be too much to expect of the owners? Why? The owners not only are in a far stronger position to get that information, but they are the ones who are ultimately responsible for deciding what risks to take on and how to handle them and whatnot.

is this not the opposite of what happened in the gulf of mexico incident?
as i recall, the principal company had to pony up a fund to assure the clean up would occur and any victims of that incident would be made whole

Yeah, BP decided to waive limited liability. It was high profile enough that the federal government brought a lot of pressure to bear on them to accept liability. But that most definitely isn't the case normally.

you have crafted a strawman to attack
we know nothing of the nature of the risk causing the company to sustain a $100,000 loss
what entity is enabled such loss to result? we don't know. your strawman story did not explain that essential aspect of the prospective scenario

Well there are an infinite number of specific scenarios that would fall in that description. For example, say that a corporation has to choose between two types of plastic for manufacturing tooth brushes. One of them has been much more thoroughly tested than the other and it costs $1 to make each brush using that one. The other costs $0.50 to make each brush, but they calculate that there is a 10% chance that it will cause $100 worth of cancer per brush. Toothbrushes sell for $1.01.

With the well tested plastic, on average, it will make $0.01 per toothbrush.

With the not well tested plastic, on average, it will lose $10 to cancer risk per toothbrush (10% of $100), but it will make $0.51 per toothbrush sold until that comes home to roost. The company can make 51 times as much profit using the dangerous plastic, maybe for decades, before the cancer gets traced back to it and the lawsuits all get wrapped up.

So, the rational thing for a non-limited-liability company is to make the safe toothbrushes, but the rational thing for the limited-liability company to do is to make the unsafe toothbrushes, pay out it's windfall profits as dividends as it goes, then declare bankruptcy when the court settlements come due.

if they do it constantly, it should not be difficult for you to point out one or more obvious examples

Sure, that example of an investment bank using a shell corporation to publish misleading prospectuses then just abandoning it and declaring it bankrupt when it got sued to high heaven is based on a recent supreme court case- Janus Capital Group v First Derivative Traders.

 

[radcen]

Well, I agree and disagree. I agree that LLC companies can be fronts and open to corruption, but so too can many other ventures. The idea behind LLC is to have a low risk way for the common investor to begin a new business, and thus spur growth in a the private sector. Also, LLC's can't trade publicly IIRC. Also, if an LLC goes under, it isn't fair to say that they lose nothing. They do lose..

This. LLCs were invented primarily to help individuals start small businesses and promote business and job growth. Granted, large corporations do abuse the intent of the system often, I cannot and will not deny that. But we also live in a sue-happy society and LLCs are meant to help protect small businesses from life-sucking ridiculous lawsuits from individuals who abuse the intent of the system as well.

 

[radcen]

I'd nit-pik on some of the details about risk/reward to the economy, and who suffers in the long term, but I DO see your point. I'm just saying that a Mom and Pop would have a better incentive to venture a new business with LLC's than without them, IMO. Damn it's tough enough as it is trying to open a new business with all the rules and regulations let alone coming up with the cash to do it in the first place. Also, to my understanding, and depending on the type of business, some LLC's actually have to carry more insurance than other types of businesses. Furthermore, in bankruptcy, the owner or owners of an LLC are subject to civil litigation if certain evidenciary burdens can be met, so they're not entirely off the hook.

Yes, LLCs can and do shield personal assets, but... it's not absolute. As you say, there are circumstances where one's personal assets would be at risk also.

 

[Diving Mullah]

I think the big pictures is not really about LLC or Corporations and their practices....The issue is the regulations.

We really had a good system from 1940s all the way to 1975 or so, with Glass Steagall Act. When We started melding with it then came S&L crash, the more with weakened REgulatory laws the more companies managed to circumvent these weakened laws and the more risk they took, Companies like Enron, MCI and ....

We need to restore back these regulatory laws, they had work well for over 60+ years. Why mess with it?

FYI Obama news law that has been blocked by the good oldboys in the Senate actually puts back the burden of liability on Big Corporations and would remove the Corporation welfare system. No more 100% of profits and the Tax payer picksup the tab if and when you crash. But sadly the bill is/was filibustered by Republicans...Naturally.


You wanne end this type of corporate free ride on American taxpayer's back, bring back the Glass Steagall act. Write to your congressmen/women and Senators and demand the law to be restored to its original strength.


Diving Mullah

 

[justabubba]

So what you're basically saying is that employees and vendors should expend the effort to track the risk profile of the corporations they work for, but that would be too much to expect of the owners? Why? The owners not only are in a far stronger position to get that information, but they are the ones who are ultimately responsible for deciding what risks to take on and how to handle them and whatnot.

an employee would prefer to work for a financially stable company. one which had prospects of employing them long term than one who was without that expectation
so, yes, the prudent employee should evaluate their prospective employer
and certainly, vendors should expect to qualify their customers. at least the ones who seek to have credit extended to them for the goods/service provided
and some of us go into a high risk environment with our eyes wide open. that turn-around prospect that i am considering an engagement with, by definition is high risk, otherwise it would not require my services. knowing that, i want to look at the books and speak with the active principals; kick the tires at the facility. and for my efforts, if successful, i will expect substantial compensation. if unsuccessful, i will receive little to nothing. so i have sound basis to want to explore who i am doing business with; if they are beyond recovery i do not want to waste my time and efforts. that vendor who extends terms to all comers is probably going to need my services - soon.

Yeah, BP decided to waive limited liability. It was high profile enough that the federal government brought a lot of pressure to bear on them to accept liability. But that most definitely isn't the case normally.

and if the company's resulting obligations had been greater than its equity and/or its ability to satisfy those obligations, we could expect that company to stall in a chapter 11 bankruptcy as long as possible so that it could self liquidate, usually to the detriment of its creditors

Well there are an infinite number of specific scenarios that would fall in that description. For example, say that a corporation has to choose between two types of plastic for manufacturing tooth brushes. One of them has been much more thoroughly tested than the other and it costs $1 to make each brush using that one. The other costs $0.50 to make each brush, but they calculate that there is a 10% chance that it will cause $100 worth of cancer per brush. Toothbrushes sell for $1.01.

With the well tested plastic, on average, it will make $0.01 per toothbrush.

With the not well tested plastic, on average, it will lose $10 to cancer risk per toothbrush (10% of $100), but it will make $0.51 per toothbrush sold until that comes home to roost. The company can make 51 times as much profit using the dangerous plastic, maybe for decades, before the cancer gets traced back to it and the lawsuits all get wrapped up.

So, the rational thing for a non-limited-liability company is to make the safe toothbrushes, but the rational thing for the limited-liability company to do is to make the unsafe toothbrushes, pay out it's windfall profits as dividends as it goes, then declare bankruptcy when the court settlements come due.

let's look at a real life example which is on the horizon: the manufacturers who have used and sold personal plastic products containing BPA
notice how they are migrating away from that additive because of their fear of resulting litigation/awarded damages
i would submit that many of those firms migrating away from the (likely) toxic plastic are limited liability entities in form. they are rational players, too

Sure, that example of an investment bank using a shell corporation to publish misleading prospectuses then just abandoning it and declaring it bankrupt when it got sued to high heaven is based on a recent supreme court case- Janus Capital Group v First Derivative Traders.

i don't understand why you think this case is illustrative of the benefits limited liability concerns possess under the law
that janus case turned on the issue of attribution
where those who relied on the information they were provided by the product originator to offer to sell that product to others were not held responsible for the product information they were given and then using
if john deere wrote about its product in a misleading manner and then the re-sellers used that misleading information from JD to sell that product, it is logical that we would hold harmless the re-seller who relied on the information attributable to JD

 

[Harry Guerrilla]

This. LLCs were invented primarily to help individuals start small businesses and promote business and job growth. Granted, large corporations do abuse the intent of the system often, I cannot and will not deny that. But we also live in a sue-happy society and LLCs are meant to help protect small businesses from life-sucking ridiculous lawsuits from individuals who abuse the intent of the system as well.

Yea this.

No business owner wants to lose everything he owns, including his home and other personal assets because of an accident or other situation, where the fault wasn't intentional.

Me thinks this proposal is pretty careless.

 

[teamosil]

an employee would prefer to work for a financially stable company. one which had prospects of employing them long term than one who was without that expectation
so, yes, the prudent employee should evaluate their prospective employer
and certainly, vendors should expect to qualify their customers. at least the ones who seek to have credit extended to them for the goods/service provided

That just isn't realistic. I don't think I've ever worked anywhere that would be willing to open the books up to mere employees. And even if they were, you'd need many days of study and probably years of accounting education to really make much sense of it...

And, you said that you thought it was too much to ask of the owners to even figure that stuff out about their own businesses. The bar you need to hit is not just to show that it is theoretically possible for an employee or vendor to review the books of a company they work with, but that it is easier than it is for the owners, since it was too hard for the owners.

let's look at a real life example which is on the horizon: the manufacturers who have used and sold personal plastic products containing BPA
notice how they are migrating away from that additive because of their fear of resulting litigation/awarded damages
i would submit that many of those firms migrating away from the (likely) toxic plastic are limited liability entities in form. they are rational players, too

Sure. Distorted incentives don't mean they'll always make the call that is wrong in the bigger picture, it means they won't always make the right call. For example, maybe if they can increase profits by 500% for 5 years then go bankrupt paying damages for using toxic plastic they might take that, but if they can only increase profits 15% for 3 years that would not be worth going bankrupt down the road. With a well designed rule, the move a rationally self interested corporation would make should always align with the most efficient path.

i don't understand why you think this case is illustrative of the benefits limited liability concerns possess under the law
that janus case turned on the issue of attribution
where those who relied on the information they were provided by the product originator to offer to sell that product to others were not held responsible for the product information they were given and then using
if john deere wrote about its product in a misleading manner and then the re-sellers used that misleading information from JD to sell that product, it is logical that we would hold harmless the re-seller who relied on the information attributable to JD

No, it's not a real re-seller. Janus Capital Management created a corporation called Janus Investment Fund. JIF was entirely owned by JCM. Every single "employee" of JIF was paid only by JCM. Despite handling billions of dollars in people's investments, JIF had basically no assets at all. It had no office space, no nothing. The case is about a misleading prospectus. JCM wrote that prospectus, gave it to JIF, and then JIF mailed it out to the investors. JIF served no real function except to forward on these prospectuses to the investors. Apparently JCM had been giving preferential timing to the transactions of its preferred customers. For example, if it was about to sell 1 million shares of something, it would sell off the shares of its preferred customers first, the price would fall from that sale, then it would sell off the shares of its other customers. That is apparently legal, but in its prospectuses it promised that it wasn't doing it. Many millions of dollars were being collected this way at the expense of its customers. So, the investors found out and sued. Suing JIF was pointless because it had no assets, but the court would not let them sue JCM. The court let Janus trick it into immunizing it from liability for its own actions by setting up a fake corporate intermediary to just absorb the liability.

 

[teamosil]

Yea this.

No business owner wants to lose everything he owns, including his home and other personal assets because of an accident or other situation, where the fault wasn't intentional.

Me thinks this proposal is pretty careless.

Well sure, they don't want to face the consequences of their actions, but why should the random victim have to shoulder those costs for them?

 

[dabateman]

Well sure, they don't want to face the consequences of their actions, but why should the random victim have to shoulder those costs for them?

There is no "random victim" for LLC's...

 

[Harry Guerrilla]

Well sure, they don't want to face the consequences of their actions, but why should the random victim have to shoulder those costs for them?

Limited liability doesn't shield someone from the consequences of their actions.
It's a shield for personal assets.

Should you lose your home and everything you own, because a jury decided that you were at fault, in an accident, that you couldn't prevent?

 

[teamosil]

Limited liability doesn't shield someone from the consequences of their actions.
It's a shield for personal assets.

Should you lose your home and everything you own, because a jury decided that you were at fault, in an accident, that you couldn't prevent?

You seem to be assuming that juries are wrong most of the time. That certainly isn't the case. In fact, the overwhelming majority of times the parties never see a jury, they settle. But, regardless, if you think there is a problem with our legal system, we should address that problem, not just arbitrarily allow some people to escape it and not others at random.

 

[dabateman]

You seem to be assuming that juries are wrong most of the time. That certainly isn't the case. In fact, the overwhelming majority of times the parties never see a jury, they settle. But, regardless, if you think there is a problem with our legal system, we should address that problem, not just arbitrarily allow some people to escape it and not others at random.

You don't know what you're talking about in this case, and that's the scary part.

 

[teamosil]

There is no "random victim" for LLC's...

Of course there are. Say you hire a general contractor to build a foundation for your house. It's just one guy, but he has formed an LLC- ACME Construction. He does a terrible job of it and 6 months later your house collapses. He has been paying the profits out to himself regularly so the money you paid has long since left the LLC, so you have no recourse. You can sue the LLC, but he can just declare it bankrupt and then start a new LLC named ACME Building. In that scenario you would be the victim.

 

[teamosil]

You don't know what you're talking about in this case, and that's the scary part.

If you think you have an argument, please present it.

 

[Aunt Spiker]

When I start my business it will be an LLC - Limited Liability Corporation. No appologies.

This doesn't 'take me off the hook' to my liabilities (loans and other debts) for my business. This controls and limits *what* can be garnished or taken ahold of in repayment of my loan if something happens and the business folds and I can't pay it back with business-revenue. I will still have to repay my loan - this just limits what the bank is allowed to tap into to get their money back from me.

It also is a protection for *one* partner when the other parter (or partners) in the business are the ones who made it go belly-up. How unfair would it be if a business-deal goes sour and someone loses their home and other personal property due to *no* fault of their own?

Not very fair - an entire family, the kid's college futures and everything else shouldn't be on the line when you're talking about a small business venture.

I'm going into business - I will define what will be my collateral. My van that I bought before the business - our house that we bought before the business - all this should not and will not be part of my business bargaining chip.

I don't see why this should be a concern for anyone - banks can be smarmy and vile when it comes to them getting what they want and they need to be limited and restrainted and this is one way that a business can protect their personal assets from exactly that.