Why don’t all partnerships and small businesses become corporations and enjoy the unfair advantage of limited liability?
Incorporation, or “going public”, requires providing quarterly audited financial statements about your enterprise to the public at large. This can be a disadvantage to entrepreneurs who do not want to explain themselves to anybody.
Because most forms of business are protected by limited liability already, not just corporations.
What makes it unfair?
Limited Liability is just like writing on every contract you partake in: “You agree to forgive my every debt should it be larger than a sum X, arbitrarily chosen by myself at a future time”. How successful could you be in sales?
I’m under the impression that limited liability largely survives because it is unfairly extended to unrelated third parties (I have LL even when I pollute the water supply of some faraway village) and because licensing makes competition hard and such inefficient firms possible. The “names” of Lloyd’s of London are still required by custom to operate on unilimted liability.
It’s expensive to become incorporated, not just during formation, but for the rest of the corporate entity’s life.
Especially if you are a part of the board of directors, you might find yourself too busy with outside regulatory issues, which are not even relevant to the functioning of your own business.
When my parents owned a store it was a limited liability company.
Some people like controlling their own business and making all of the investment decisions.
I thought free market folks say corporations could never exist in the free market as they are now, because they would not “ENJOY” limited liability…
they make it sound as though limited liability gives the corps an unfair advantage…
Incorporated entities are given limited liability protection, so all corporations “enjoy” limited liability. However, not all limited liability companies (LLCs) are incorporated. Some are partnerships or sole proprietor businesses (and it is limited liability companies, not corporations). LLCs allow unincorporated businesses to have the same protections afforded to incorporated entities, while maintaining the ability to have pass-through income (company income can be claimed and taxed by the company or passed-through to the owner(s) and taxed as their income), thus giving an LLCs owner’s some protection from double taxation as well as the advantage of choosing the lower tax bracket between corporate and individual income taxes.
Could this limited liability protection exist in a free market? Does it give businesses an unfair advantage?
was listening to a Rothbard lecture the other day and he said that he thinks there is nothing wrong with limited liability in the sense of if people dealing with the company know the risk before doing business. But where it runs out is in the case of torts. If the company was responsible for destroying someone’s or a group of people’s property, they could not hide under limited liability.
This.
Historically, limited liability was a big factor in the Second Industrial Revolution. It was to give those investing in new technology capital an incentive to do so. Debtor’s prison is one hell of a disincentive for technology investment.