Marie PhD
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Removing Limited Liability, the pitfalls.

4/4/2012

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US is litigious society as you probably know. Corporations are being sued because so many people are stupid. For instance they get burned buying hot coffee. Hence everything we buy now has stupid warnings on it. Not that I am opposed to corporations being sued, mind you. In the last five years, my husband and I have participated and won two class action law suits! In my husbands case it took several years to finalize, it was against citibank. In my case it was paid up within a year but they were a minor player.

Corporations have access to the best lawyers, lawyers who know how to delay in court & win law suits, average people seldom get access to those sorts of lawyers. Hence it took years for citibank to pay up and the amount they paid was less than $100.

Limited liability only effects the owners of the corporations IF the corporation is sued sooooo hard, it bankrupts the corporation. If you are the owner, you'd have a chance to get out of town, definitely before they get to you.

Secondly, if the ltd liability law is changed, owners will evaluate their risk of being sued. The owners who have a lot to lose will exit the market place. Only huge corporations will decide they can take the risk especially if they think they can afford to buy judges. Hence it will further concentrate power into the hands of those who are already powerful.

As I pointed out recently, we can sue corporations now, but as yet, no one is suing the wall street corporations that caused the crash of 2008. Someone said, they didn't break any laws. So if Wall Street didn't break any laws, it means that removing ltd liability will have no impact on the corporations, if legally they haven't done anything wrong.

If you own stock in a corporation, you might get hit but only if you are one of those stockholders who actually holds onto stock for long periods of time. Most transactions on the stock-market are instantaneous. You buy 1million shares and sell after 20mins when the share has gone up 5c. That's how people are really making money on the stock-market. So in the case of BP, the little old lady who inherited her shares from her dead husband will be hit by ltd liability. The people trading on the stock-market made their big windfall the day BP announced they could drill in the gulf. Most of those shares have been bought and sold a million times since then. So when did the liability come into play? The day they signed the deal? Or the day they couldn't seal the leak? Did they know when they signed they might come into serious problems later on? I doubt it, otherwise why would they take the risk?

And is it only shareholders? or people who own futures or have their portfolio managers investing their 401k in a mix of BP shares and whatever else.

Then there are people who set up an LLC purposely to avoid losing their homes. This is important when people starting their business hold patents as the world of patents is full of people suing others just to make money.

No. If an employee screws up and hurts a firm so badly everyone loses their jobs & resulting in the failure of the business, they still keep what they earned when employed there. Removing Ltd liability is unfair to those who do nothing wrong.

I agree removing ltd liability sounds like a nice solution, but extremely impractical in a litigious society.

A better solution would be to get rid of the stock-market. What would be possibly more helpful, but never considered, is to close stock-markets because that's where the real problems began and occur. They caused the first depression and the latest meltdown. Other changes could be improve laws and speed up the legal process for law suits.
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    I am interested in progressive politics, women's rights, science & art. I believe the only way we'll survive is if we help each other.

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