Re: Free-Market Economics

Hagbard Celine (hagbard@ix.netcom.com)
Sun, 13 Jul 1997 17:50:49 -0400


kenl@phoenix.net wrote:
>
> Eric Watt Forste wrote:
>
> > It seems to me that a corporation is just a contractual agreement by
> > which a group of shareholders can own property jointly and make joint
> > contracts with other people. Is it joint ownership of property or
> > joint contracting that you disapprove of? If not that, then what?
>
> I don't mind joint ownership or joint contracting, as long as the state
> doesn't absolve the individual owners of responsibility and/or treat
> "them" as and abstract "person." I'm not a expert on corporate law, but
> I do know that a bunch of guys can get a charter from a state, slap INC.
> after their company's name and magically enjoy special protections that
> the same group who decided not to incorporate would.

Okay, I'm beginning to understand where you're coming from here.

First, we must distinguish between ownership and directorship. The
owners of a corporation are you and me, the stockholders. Typically, in
all but the most extreme of circumstances, stockholders are not liable
for corporate stupidity. There's a mess of criteria involved in
"piercing the corporate veil" in this way, but they're not really
relevant here. Suffice it to say that people incorporate in order to own
a portion of the company, hire someone to run it, and then forget about
it and collect the dividends.

A directorship is entirely different. If the director is not an owner,
then see my earlier post about when he or she can be nailed for stupid
decisions. If the director is an owner (i.e., shareholder) the
directorship rules hold as far that person's liability. That is, a
director can't defend himself against a lawsuit by saying, "Hey! I'm a
shareholder! You can't get me!" That's a no-go.

If every shareholder were liable for corporate foul-ups, this, IMHO,
would be absolutely unjust. Indeed, for every director to be immediately
liable for corporate foul-ups would also be unjust (but less so). I see
no problem with the current system of collecting the sum of the group's
business activities together under the entity XYZ, Inc. and then nailing
the entire complex for the foul-up.