U.S. corporate law varies by state – but generally separates ownership from liability. This liability shield is a natural legal outgrowth from the fact that the owners investment in the company is passive – i.e., they are not involved with the day-to-day management or even, potentially, operations of the company.

Directors and Officers are responsible for the management, but are also free from liability for wrongdoings of the corporation in general. Therefore, corporations are solely concerned with increasing profit.

The more dynamic the global market becomes, the less connected we are to our investments. Government regulations that attempt to integrate certain negative externalities (e.g., polluting behavior) into the decision-making of corporations…but attempting to create regulations that are clear will mean standardizing “moral” behavior in an environment of that decision-making is infinitely diverse.

Therefore, what would the benefits be for requiring some limited level of liability for investors/shareholders in a public company, implemented in a manageable fashion? What are the drawbacks? And are such drawbacks without solution?

Please note that this question is limited to the positive and negative aspect of imposing some level of liability on shareholders for corporate wrongdoing. Note that personal liability means the potential requirement that individual shareholders be personally accountable for a liability to pay corporate debts beyond their initial outlay to purchase shares.

Topics: government, corporations, capitalism, regulation, liability, free enterprise