From: The Baileys (nanotech@cwix.com)
Date: Sun Jan 10 1999 - 06:46:30 MST
Peter C. McCluskey wrote:
> For example, if a company that pays out a
>dividend which later turns out to cause it to default on a debt,
shareholders
>can be liable (I suspect up to the amount of the dividend).
Generally, shareholder liability is capped to equity investment.
I did not see the initial points in this argument but limited liability is a
hallmark of the corporate form. There are significant disadvantages to the
corporate form to partially balance this limited liability advantage. The
most significant is double taxation on corporate earnings. Corporations (at
least under subchapter C) are taxed on their taxable income and shareholders
are taxed on dividends distributed by the corporation. In most situations
this state of affairs amounts to an effective tax rate of 61% on corporate
earnings.
Additionally, the corporate form is not a device for committing crimes and
avoiding responsibility. The corporate form allows for a large number of
investors to combine their capital without the fear of significant vicarious
liability for the actions of the group or of individual shareholders. If a
corporation is found to be a device to perpetrate crime then the corporate
veil will be pierced. In closely held corporations (corporations with a few
large shareholders), the corporate veil is often pierced when a
minimally-capitalized corporation incurs signficant liability. This is the
hallmark feature of limited liability entities. The firm I work for is a
limited liability partnership. This choice is not designed to allow
partners of the firm to avoid liability. Instead, it is a choice that
allows only the partners responsible for a situation where the firm incurs
signficant liability to be liable for those sums. I certainly do not want
to become liable for what a less-than-scrupulous partner in Mauritius
decides to do.
Doug Bailey
doug.bailey@ey.com
nanotech@cwix.com
This archive was generated by hypermail 2.1.5 : Fri Nov 01 2002 - 15:02:46 MST