Should shareholders of corporations be liable? Is liability of shareholders more or less free-market?
(clearly, corporations as we understand them today are creatures of statute–still, in an Austrian-esque free market system firms will still need access to capital markets, especially since distribution of capital would be much more broad-range)
It is entirely libertarian. Respondeat Superior only applies to torts commited by an employee operating within the range of his duties and those responsible for him (managers). Even under current LL laws you can sue an employee and his superiors as well as the corporation. Limited partners and non-managing investors, like shareholders, are only liable for the investment they have made into the corporation - they are not responsible for torts commited by the firm, and have no personal liability.
LLC raises your capital costs but it does indeed help with not bankrupting yourself in case your venture doesn’t pan out. The objections to LL for debts is obviously silly as it is negotiable with creditors, but the simple principle of respondeat superior already addresses limited liability for incorporation - holding shareholder assets as liable for damages caused by a corporation really flies in the face of the principle that a person can not be held responsible for actions they do not control. Also, the huge amounts of capital and liability insurance that most largish corporations have makes the whole issue of limited liability nearly irrelevant; like a FedEx driver running you over can’t be paid out of their petty cash holdings?
If anything the current law which fails to properly protect partnerships private assets from unlimited tort suits and which refuses to distinguish between intentional and unintentional torts is overly harsh.