It is not possible (under natural law) for multiple individuals to get together and write a contract that absolves ALL parties from liability. Liability may be divided equally, among several parties, or placed on one individual, but it /cannot/ be contracted away entirely. They cannot form a ‘collective person’ and place liability on it.

It doesn’t matter to me how many people are liable, as long as /someone/ is liable. That person will then have the incentive to make sure his business operates morally and responsibly (both socially and financially). If he does not, he will lose everything.

Naturally, contracts will be written so as to give those with greater liability greater ownership, as no one who is liable will want to forfeit his control (and his fate) to an individual who is not held liable.

The overriding concern with tort is to see that the damaged parties are made whole again, as they never entered into a contract or otherwise took any willful risk.

This is why it is important to attach ultimate liability to the property owner, who happens to be responsible for the initial delegation of power.

For obvious reasons, liability should be applied first to the individuals (if any) found to be negligent or worse (although the corporation may be contractually obligated to cover its agents’ liability in certain predetermined circumstances), followed by, if necessary, the assets of the corporation itself. However, it remains imperative to recompense the injured party to the full extent of his damages, should the negligent individuals and the assets of the corporation be insufficient to recompense the damage done.

As was given in example in the related discussion on Kevin Carson’s blog, a corporation operating heavy, potentially dangerous machinery, inherently incurs elevated risk as a cost of doing business, outside the realm of actual negligence (or worse). Nearly everything in society entails a certain amount of risk, and that is generally OK, until someone is hurt. Such injury may be impossible to attribute to a specific act or acts of negligence, even though there remains an injured party in need of recompense and as well a party responsible for the property which incurred the liability. In this case it remains only proper that the injured party be “made whole” once again, at the expense of the owner of the property which bears the casual relationship to the tort.

Why the owner, in cases where their delegatory authority isn’t quite relevant, as there isn’t a specific act of negligence (or worse) to specify blame? Simple, it remains their property which caused the harm. They maintain the existence (and thus actions, if any) of their property, at their sole (presumable) benefit. Thus, they should bear ultimate liability if their property happens to damage someone in an unpredictable fashion outside the scope of negligence or aggression.

This, of course, assumes that you recognize the practical reality that a tortfeasor may be neither an aggressor nor substantively negligent, and yet still incur liability from the small but still real, societally accepted risk that so many actions (especially profitable ones) entail. We take these risks and are not (nor considered) negligent for doing so, yet we ought still to be responsible if we hurt others when those small risks pan out to be real.

I suppose the obvious example is the hypothetical case of a dog on a leash, with no demonstrated or suspected temperament or aggression issues, who, without provocation or forewarning, “snaps” and lashes out at a child passing by on the sidewalk, biting him in the process. Nobody would say such a dog owner is negligent merely for walking his apparently well-tempered dog. Yet, he should still be liable for the damages incurred by the attack. The child, who did not maintain a potentially dangerous chattel, accepted no willful risk, and has no resources to pay for his injuries, should certainly not have to bear damages sustained from an impossibly unpredictable attack while walking peacefully down the sidewalk.

Extrapolating from the example of “heavy machinery”, we see that the resources of a corporation may allow much greater potential harm at what remains an acceptable (read: non-demonstrative of negligence) miniscule risk than what may be redeemable by the assets of the corporation. This is when shareholders should bear ultimate distributive liability for the remainder of the damages, regardless of specific fault, and beyond the value of their initial investment, if necessary. This would simply be one of the risks of owning shares in a company. In reality, the risk would not be immense — proportionally no worse than the risk to random individuals incurred from the cumulative danger of all these societally acceptable miniscule risks which do not imply negligence — only the damages would fall on parties with some relationship to the property at fault.

How does a form of enforcable liability arise other than via a “legal system” having coercive powers, usually derived through the political (and occasionally social) structure.

Thus to say how far and when that power shall be used is really a limit on powers.

On Torts: ever hear of absolute liability without fault?

R. Richard Schweitzer

I also concur with Quasibill that if a business practice such as limited liability is so useful, it doesn’t make sense why it should be institutionalized by State fiat. I happen to think that the State rationalization of business by legal means in favor of certain parties IS a big deal. Simply dismissing unwitting consumers as unsophisticated is insufficiently libertarian. It ignores a massive and complicated corporate legal code that nobody fully understands – another way in which a “system” is substituted for authentic human conscience and masks otherwise unsavory activities.

Tort Reforms were responsible for creating almost 295,151 permanent jobs in Texas during the past few years. This shows that the tax reforms have had a direct and positive impact on the lives of the consumers. The savings to the typical Texas household in terms of lower prices and increased total personal income amount to $1078 annually, and those savings are projected to grow over time. Many of the cases lying unsolved in the courts have now been cleared, giving the citizens greater access to the courts. So the study confirms that tort reforms have benefited the consumers and businesses and also the courts with civil justice reforms.

Mr. http://www.pacificresearch.org/press/clip/2006/clip-05-24-06tlr.html

Regardless of the age of the concept (I accept that many evil things are old) there is the point of freedom of contract.

If a group of people (or even one person) say IN ADVANCE “if this business venture goes wrong, we will not sell all we own to pay your loss, we will only give you want we have put into the business” then a customer or supplyer has a choice.

They can refuse to do business with the business these people have set up (i.e. only do business with non limited liabilty concerns where the people who own the business are open to losing all their private wealth – their homes and so on), or they can accept this condition.

It is wrong to do business with something that clearly called itself “Limited” (in Britain) or “Incorporated” (in the United States) and then say “the business has gone bankrupt, but the shareholders still have homes and cars (etc) I demand they pay me!”

Only someone who did not know in advance that they were dealing with a limited liability organization (due to some deception) has a possible case against the shareholders.

Although I am disturbed by the quiet dropping of the term “Limited” (in Britian) and “Incorporated” (in the United States).

A corportaion should not just call itself “I.B.M.” (or whatever) it should be careful to call itself …… INCORPORATED (in the United States) or …….. Limited (in Britain).

After all some organizations are not limited liability (such as Lloyds insurance in Britian) and (on moral if not legal grounds) the practice of just giving their name (without having to state that they are limited liability) should be reserved for them.

No one should have to do business with a limited liability concern without knowing what it is – and be open about what it is should be the responsibility of the limited liability concern.

I am not asking that there should be a great sign outside every building of such an organization saying “If this place goes bust you do not get paid for you have sold us, and you get to watch the shareholders drive off in big cars to their nice houses”, but surely asking for the words “Limited” or “Incorporated” after the name is not asking for too much.

I’ve been quite pleased to see something approaching a consensus emerging on these issues, but have one technical point to make about terminology, which I think is important:
The drunken truck driver employee who runs over the child is “directly liable.”

The employer who knowingly sends the drunk employee out after smelling the stench of moonshine on him may be held liable on one of two theories:

-He is “indirectly liable” if he was negligent or somehow causally responsible in the sense that Mr. Kinsella (rightly) insists upon.

-He is “vicariously liable” if he is held liable automatically simply by virtue of the fact that he bears a certain relation to the employee. To the extent that we’re defending the possible responsible of those who did not physically cause the harm, we ought not to call that liability “vicarious” unless, perhaps it can be justifiably said, that a certain class of person’s always would in fact be causally responsible in situations where they did in deed bear a certain sort of relationship to the direct tortfeasor.

That’s all for now,

Araglin

QB: 10
NSK: 1

It would be closer but QB scores multiples for making the same logical point over and over but NSK simply can’t comprehend. NSK scores one big point (the first point) for saying that “corporations” could exist without a state and no libertarian rule could prevent it.

Alternative forms of marriage will exist. It will likely be Christian in nature, but maybe it will be Muslim or something else. In modern civil law marriage has a different meaning and effect than in, say, classical Christian communities. Today, I can get a marriage certificate from the state that has a fixed set of rights/obligations (if you are male, it’s mostly obligations, but I digress…as eddie murphy joked “eddie, I want half!”). In libertania things will be different. So, too, with business entities.

What’s so ridiculous about that?

But this is ridiculous. marriage as we now konw it would not exist in libertania, since it would not be a creature of the state. Does that mean there would be no marriage in a free society?

“As for my example of shareholder who is also employee, surely you agree that if I create “Cow Pie, Inc.” and then hop in the cowpie-mobile and run Person over on the highway, my shareholder status would not reduce my liability to Person in the slightest.”

Uh— of course not. It does not NOW.

Okay, I am having some fun here, but I don’t mean to be obtuse.
—
You say:

“All we are maintaining is this. First, by contract people can become limited liability “shareholders” liable only to the extent of their initial investment, to third parties who contract with the company. Second, *merely holding shares* does not appear to involve the shareholder in enough active control of what employees of the company do to make them vicariously liable for whatever the company is vicariously liable for in tort. That is all. I think you people are all very confused about what it is you are arguing against.”
—
Assuming contract law in libertania allows for this, I agree with this statement. I only ask whether corporations as we now undertand them to be would exist in libertania. And the answer has to be nay. There may be some creature similar to corporation, but not corporation.

As for my example of shareholder who is also employee, surely you agree that if I create “Cow Pie, Inc.” and then hop in the cowpie-mobile and run Person over on the highway, my shareholder status would not reduce my liability to Person in the slightest. I just mentioned this point in passing because some people think the corporate shield shields actual acts by individuals. Not so. Person would be entitled to judgement against me and my corporation.

Oh, and corporations serve no purpose in real life. At all.

Dude, I have trouble believing you are serious here. This is just bizarre.

As an aside, if we argue liability in situations involving corporations, we shouldn’t forget that corporations are persons at law.

I assume you have actually read Hessen and are familiar w/ his extended discussion of this issue?

As legal creatures it must act through physical beings, ie, corporate managers and employees. As such, imputing liability from managers and employees to corporation is very easy and commonly accepted today.

This does not imply that it’s justified to automatically hold a shareholder vicariously liable for the actions performed by other people (which actions? which people?).

Further, pass-through liability to a corporation by necessity implies direct liability of employee and manager.

liability for what, exactly? For what actios? For those of some monk in timbuktu?

Directors can also be liable.

Sure, why not–if and to the extent it is establihsed they are vicariously responsible for the tort in question?

That said, in libertania, if corporations existed (which I maintain would not be the case any more than cow pie pizza would exist in libertania), attributing liability to shareholders would be be difficult even without grant of immunity by ___________. This is because shareholders are not technically on site for the wrongdoing. But beware, if you are a shareholder of a corporation and, while in the course and scope of your duty as an employee of the corporation, you commit a tort, you are on the hook for the whole kit and kabooble notwithstanding your shareholder status.

Lee, what in the world are you talking about?

But if you only own shares and are kicking back in Houston eating cow pies when the tort is committed by the corporate employee in Oklahoma, of course there is no liability to you.

Uhhh…. so you are disagreeing w/ us how?

All we are maintaining is this. First, by contrat people can become limited liability “shareholders” liable only to the extent of their initial investment, to third parties who contract with the company. Second, *merely holding shares* does not appear to involve the shareholder in enough active control of what employees of the company do to make them vicariously liable for whatever the company is vicariously liable for in tort. That is all. I think you people are all very confused about what it is you are arguing against.

Further, pass-through liability to a corporation by necessity implies direct liability of employee and manager. So if I am hurt by employee of corporation, I get my compensation from employee and corporation, jointly and severally.

Directors can also be liable. (If employees and managers are arms and legs, then directors are brains — as hard as it may be to swallow while witnessing the Hewlett Packard fiasco involving the ladies who ran board, ran in-house counsel and used to run corporation…). Directors usually have something in their contract that says corporation will pay all bills unless director intentionally and knowingly acted in an illegal manner, etc.

Shareholders can only be liable to extent of their capital contribution to enterprise or money paid for shares.

That said, in libertania, if corporations existed (which I maintain would not be the case any more than cow pie pizza would exist in libertania), attributing liability to shareholders would be be difficult even without grant of immunity by ___________. This is because shareholders are not technically on site for the wrongdoing. But beware, if you are a shareholder of a corporation and, while in the course and scope of your duty as an employee of the corporation, you commit a tort, you are on the hook for the whole kit and kabooble notwithstanding your shareholder status.

But if you only own shares and are kicking back in Houston eating cow pies when the tort is committed by the corporate employee in Oklahoma, of course there is no liability to you. (Some may argue that giving the employee instructions to commit the tort somehow imposes liability on our cow pie loving shareholder, but I doubt that for many reasons, beginning with the concept that shareholders don’t give order to corporate employees, managers do, and managers get their instructions from directors, and directors almost NEVER ask for shareholder approval first.)

Oh, and corporations serve no purpose in real life. At all.

No, you put the cart before the horse, as you must determine who is delegating a power before you can determine whether there can be vicarious liability. No person who does not have superior rights to the property can be found to be vicariously liable. Quite simple, no? Then, you move on to whether the delegation was a responsible use of that property right. Apparently it’s okay to just assume someone might have a property right and then begin the vicarious liability analysis. I say it flows the other direction.

And that’s important, because you need to know where the corporate manager’s authority comes from. It’s not an inherent right – in most cases, his powers are revokable at will by someone else. Who might that someone else be? Were they responsible in their delegation to that manager in the first place? Were they responsible in not revoking the delegation earlier?

You seem to be arguing that these questions aren’t relevant, because you don’t like identifying who actually owns the property rights at stake. I say that that is the first question that must be answered.

“I believe the world has nuances. Context and facts matter. Not all cases are alike”

I agree. Which is why blanket immunities (and for that matter, blanket liabilities) given to distinct classes are *always* problematic.

“I think the manager is more analogous to a sole proprietor. They have similar control in making policy, hiring and directing employees. You think the shareholder and proprietor have more in common–becuase they are both “owners”. I focus on control and causation as elements of what determins “vicarious” responsibility. I have given reasons why (in my paper on Causation). You by contrast seem to focus on the Officail Deeming that someone is an Ultimate Owner. I have yet to see a reason given for connecting Ownership with vicarious liability.”

You’re skipping right over it. By what right does the corporate manager have control? By what right does the sole proprietor have control? Hint – corporate managers don’t have a “right” at all, but a “power under authority”, just like the day to day manager under a sole proprietor does. This is where you are constantly returning to a Marxist conception of property rights being held by some abstract entity. The entity does not exist. It is in fact composed of individuals who must act for it to have any ability to actually act.

“But this is minor.”

Ah, well there it is. You value it to be minor, whereas I see it as non-trivial. Can we resolve this conflict? Well, you, as a Randroid type, probably think so. We’ll just have to agree to disagree on your valuation. But it’s nice to finally have the concession.

“Yes. I just say mere ownership is not enough to show this. Do. You. Agree?”

I. am. saying. that. mere. ownership. is. enough. to. ask. the. question. whether. the. owner. delegated. his. property. rights. in. a. responsible. manner. The rest of the analysis flows from there. If the owner wasn’t negligent (or worse) in this decision to delegate, and that is the only link in the causal chain to the owner – no.liability.

“Yes but you people ”

Can I pick up anything written by Rand and state that “you people” argue [x]? Please, stop with the collectivism. I’ve made my individual argument. Don’t ask me to defend positions I have not taken, and I’ll do the same for you.

“Oh. Now it’s an argument for fraud. Sheesh”

Read carefully, and you’ll note that I’ve declined to call it legal fraud. I’m not using the term in the technical sense in that sentence, and again, I’m not claiming that it should be illegal.

“I don’t frankly care. If people parties to an agreement don’t take the time to specify it carefully enough, they are to blame. If enough people are harmed by the wrong legal presumption, then practices will change. ”

I agree. I just find it funny that some libertarians (not you, but IIRC it was PE in this thread) claim the need to create legal privileges to make it easier for a given class to accomplish its objectives. I merely suggest that if you want contractually limited liability, it is fairly easy to include a standard clause in every contract you make. Then there can be no argument that the parties weren’t aware of some convenient legal fiction. It would revert back to standard contract analysis. However, I will agree to the extent that this is, in general, not a very big deal. But it is important to note that it isn’t fundamentally sound.

“Sure. But I find that a-libertarian. Interesting, but irrelevant.”

Fine – but you were the one to post his article. And further, as noted above, I’m clarifying my position contra the “you people” that you seem to confuse me with.

Let’s be clear, certain “libertarian critics” of the corporation don’t focus on limited liability as much as they focus on how useless and meaningless the corporate form is. The mistake made by many (I have yet to digest 126 pages of Pilon’s thinking on this), is that they assume the corporate form serves a legitimate purpose. It doesn’t, it can’t and it never has (contrary to popular myth — similar to the myths of “rights granted to us by constitution” and “government is necessary to secure our rights, build roads, provide justice, secure patent rights,” bla bla). That’s the illusion we need to dispense with, and then we can lollgag around on issues of liability in a world of disjointed actions and perfect freedom.

What is the purpose of arguing that a corporation has no purpose? What is the relevance? Even if this were right, it has nothing to do with libertarianism.

Bit-of-Bill:

“But a sole proprietor is liable because he directs the actions of the negligent employee, and actually runs the company–sets policies, controls is, manages it.”

But that is not all. He is also the ultimate owner, who has the right to decide that someone else will run the company.

for some reason you guys see some relevance in being able to Name that sommeone is the Ultimate Owner. I think you’re putting the cart befor the horse; you are failing to provide an *argument* for why mere ownerhsip interests give rise to *vicarious liability*.

For example, the common practice of franchisees to hire a location manager, who in actuality is responsible for all day to day operation. But the manager ultimately derives his authority from the owner, who has non-permanently delegated it to him. This delegation is, in itself, an act that has consequences in the world. For this act, the sole proprietor can be held responsible, including a situation where the sole proprietor hired a dangerous manager because that manager was likely to yield higher profits.

I believe the world has nuances. Context and facts matter. Not all cases are alike. I think there is a difference between what a sole proprietor does and what a shareholder does. Apparently you do not. I think the manager is more analogous to a sole proprietor. They have similar control in making policy, hiring and directing employees. You think the shareholder and proprietor have more in common–becuase they are both “owners”. I focus on control and causation as elements of what determins “vicarious” responsibility. I have given reasons why (in my paper on Causation). You by contrast seem to focus on the Officail Deeming that someone is an Ultimate Owner. I have yet to see a reason given for connecting Ownership with vicarious liability.

As I’ve noted, the shareholder’s decision to hire a director is, in fact, absolutely immune as long as they follow some statutorily defined rituals.

I don’t agree that they should be. I can conceive of some cases where there might be liability. Perhaps.

They ARE the ultimate owner involved,

So??

and they ARE the one(s) that delegate the right to control to the managers.

No, they select the Board of Directors. The Board hires managers. Managers then supervise employees or contractors.

This delegation IS an action for which liability can possibly accrue, under a libertarian theory. Under current law, it can’t, unless the shareholder disregards a fictitious concept.

to the extent this is true, I would agree, that would not be teh case under libertarian law. But this is minor.

“Does it? If an employee–say a truck driver of FedEx–is also a shareholder, and negligently runs over someone, does his status as a shareholder immunize him? Nope.”

Strawman. He is not liable in his identity as a shareholder, he is liable in his identity as an employee.

It’s not a strawman; I’m trying to make sure the description you are resting your critique upon is accurate.

Again, the point is that to the extent he has exercised a right that can be linked in the causal chain to the harm caused, there is an argument that he should be liable.

Yes. I just say mere ownership is not enough to show this. Do. You. Agree?

“So long as people would be free in private society to (a) limit shareholder’s contractual liability for debts of the corporation; and (b) not be held to be automatically responsible vicariously for actions of the company’s employees merely becuase they are shareholders, then we have the seed of a simalcrum of a corporation.”

Well, I’d limit (a) to “contractual debts” in the sense that at least one *real* person would have to be responsible for its tortious debts – that would be a matter of contract (indemnity, etc.) between the shareholders, but they could not extinguish the rights of non-parties to their contract.

sure, by (a) I am refering to contractually acuiqred obligtions wtih third parties. They are on notice they can only pursue the assets of the company, not the shareholders individually.

And 2nd, “simalcum” is a good description. It is not, in fact, what we currently have. The extent of the difference in practice is impossible to predict with certainty.

Yes but you people are critiquing features we say are not problematic about corporations. I find in fact the whole obsession w/ corporations to be crankish and kind of leftist or something.

Maybe because legal fictions are a front for defrauding the less sophisticated.

Oh. Now it’s an argument for fraud. Sheesh.

Can you honestly argue that a person who doesn’t understand the meaning of “inc.” consented to limited contractual liability?

? I don’t frankly care. If people parties to an agreement don’t take the time to specify it carefully enough, they are to blame. If enough people are harmed by the wrong legal presumption, then practices will change.

As far as Gabb’s critique, I agree with much of his criticism of the cultural effects,

Sure. But I find that a-libertarian. Interesting, but irrelevant.

forgive me if I fail to respond to your posts – its clear we have a communication problem. You have, in the past, claimed to have clearly refuted certain arguments. I see your alleged refutations, and they are as clear as mud to me. The opposite appears to be true as well. What to me is a clear answer to your point, you don’t understand. We seem to speak different languages. I gain nothing from our exchanges, and its clear my posts aren’t useful to you. In the end, we degenerate to name calling, which is not beneficial to either of our positions.

Stephan,

“But a sole proprietor is liable because he directs the actions of the negligent employee, and actually runs the company–sets policies, controls is, manages it.”

But that is not all. He is also the ultimate owner, who has the right to decide that someone else will run the company. For example, the common practice of franchisees to hire a location manager, who in actuality is responsible for all day to day operation. But the manager ultimately derives his authority from the owner, who has non-permanently delegated it to him. This delegation is, in itself, an act that has consequences in the world. For this act, the sole proprietor can be held responsible, including a situation where the sole proprietor hired a dangerous manager because that manager was likely to yield higher profits.

As I’ve noted, the shareholder’s decision to hire a director is, in fact, absolutely immune as long as they follow some statutorily defined rituals. They ARE the ultimate owner involved, and they ARE the one(s) that delegate the right to control to the managers. This delegation IS an action for which liability can possibly accrue, under a libertarian theory. Under current law, it can’t, unless the shareholder disregards a fictitious concept.

I have at some time or another, read all of those sources, although, like you, I don’t have handy recall to all of the points contained therein.

As for Hessen, I don’t agree entirely with his analysis of vicarious liability with respect to inactive shareholders. To the extent that they are inactive by legal inability, his analysis is fine. To the extent they have the right to be inactive, but fail to exercise that right, they can be held liable for their failure to use their right in a responsible manner. Other than that, his analysis seems to agree with everything else we seem to have agreed upon.

“Does it? If an employee–say a truck driver of FedEx–is also a shareholder, and negligently runs over someone, does his status as a shareholder immunize him? Nope.”

Strawman. He is not liable in his identity as a shareholder, he is liable in his identity as an employee. Again, the point is that to the extent he has exercised a right that can be linked in the causal chain to the harm caused, there is an argument that he should be liable. Current corporate law arbitrarily protects shareholders from the possible consequences of their actions.

“So long as people would be free in private society to (a) limit shareholder’s contractual liability for debts of the corporation; and (b) not be held to be automatically responsible vicariously for actions of the company’s employees merely becuase they are shareholders, then we have the seed of a simalcrum of a corporation.”

Well, I’d limit (a) to “contractual debts” in the sense that at least one *real* person would have to be responsible for its tortious debts – that would be a matter of contract (indemnity, etc.) between the shareholders, but they could not extinguish the rights of non-parties to their contract.

And 2nd, “simalcum” is a good description. It is not, in fact, what we currently have. The extent of the difference in practice is impossible to predict with certainty.

“You seem to not be able to get past the convenient use of legal fictions”

Maybe because legal fictions are a front for defrauding the less sophisticated. Look, I have no problem (legally) with hucksters swindling the unsophisticated out of their money, but I prefer that they are actually forced to spell it out up front, during dickering. Can you honestly argue that a person who doesn’t understand the meaning of “inc.” consented to limited contractual liability? To me, you only can by using arguments akin to you consenting to the current Constitution.

“The libertarian critics of the corporation implicitly rest their critique on the idea that *merely* being an “owner” is sufficient. that is what i deny. ARe you now retracting this?”

Not totally. I think you are too glib as to the concept of who delegates the rights of control, but beyond that, I think we agree.

As far as Gabb’s critique, I agree with much of his criticism of the cultural effects, but I don’t trace the problem to corporations per se, but to the “public” markets as established by states as well as the central banks. “Close” corporations absent Fed currency manipulations, would, in fact, probably not have created so many cultural negatives.

1. sole proprietorships and corporations are treated differently with respect to liability for employee actions. Sole proprietors have respondeat superior, while shareholders have limited liability.

I think I see what you’re trying to get at here. You see a sole proprietor as responsible for employees’ torts; yet you think there is an artificial exemption for “joint owners”. If they just “stand in the shoes” of a sole proprietor, why aren’t they collectively liable?

But a sole proprietor is liable because he directs the actions of the negligent employee, and actually runs the company–sets policies, controls is, manages it. In a joint stock company, the shareholders don’t do any of this. They elect the board, which appoints managers. In my view, the managers are more analogous to the sole proprietor than the shareholders are.

Let me also ask you: have you read Robert Hessen’s by-now classic work on this, In Defense of the Corporation? It’s a very thorough, learned defense, based on libertarian principles. I really think anyone wanting to weigh in on this needs to be familiar with this pioneering work. He handles tons of these kinds of objections.

Before proceeding further, let me list here some good resources on this that really should be studied by anyone seriously interested in this issue:

• my blogposts, In Defense of the Corporation and Legitimizing the Corporation
• The NRA Gets It Wrong (section “Corporations and the state”), by Sheldon Richman, Freedom Daily
• The Theory of the
  Corporation, by Norman Barry, Ideas on Liberty
• Killing Corporations:
  The movement to revoke corporate charters has gotten its history confused, by Jesse Walker, Reason
• Corporations and Rights: On Treating Corporate People Justly, by Roger Pilon
• summary of the Pilon article in Literature of Liberty

Richman notes:

What about torts, or actions that harm people who are not parties to any contract? (We’re primarily concerned with unintentional torts here.) Partners in an unincorporated firm can personally be sued by someone, say injured by a company vehicle, but not so a shareholder. This seems to confirm that corporate status is a privilege.

Hessen explains that in England long ago the “principle of vicarious liability” was established, holding that a master was liable for the torts of his servant. This was reasonable because the master hired, trained, and supervised the servant. Later the same principle, reasonably, was “extended to sole proprietorships and general partners.” However, he says, it doesn’t follow that it should be applied to all holders of corporate stock. Hessen writes,

Vicarious liability should only apply to those shareholders who play an active role in managing an enterprise or in selecting and supervising its employees and agents. The tort liability of inactive shareholders should be the same as that of limited partners — that is, limited to the amount invested — and for the same reason; namely, inactive shareholders and limited partners contribute capital but do not participate actively in management and control.

I had forgotten this but must have absorbed it when I read Hessen long ago. Hessen here is making the same basic causation point I have made here: that vicarious liability must be relied on to hold someone liable for the servant’s actions–and in the case of a sole proprietorship, it is reasonable to do so because the proprietor/master is hiring, training, supervising the servant/employee. But in the case of a joint stock company, the same idea applies only to those sharehlolders who “play an active role in managing an enterprise or in selecting and supervising its employees and agents”.

This makes sense to me. Merely being a shareholder is not sufficient. It’s having control. I believe most of the corporation opponents have some view that inherently connects liability to property. I think this is confused and wrong. Liability flows from one’s actions–from control–from causing the harm to occur.

2. Limited liability has no connection to the concept of causation. Piercing the corporate veil is not based on determining whether there was control or causation, rather it merely attempts to determine if the shareholder didn’t respect the corporate identity.

Look. The point is this. Le’ts not stray. Libertarian critics of the corporation base this criticism on certain features, namely limited liability. The question is: in a private society, with no state privilege, could private actors form the basically same type of arrangement that had the features you guys complain about. We have shown that contractual limited liability is no problem. What about torts? See above.

3. Respondeat superior may or may not be justified as to sole proprietors (and therefore corporations as well) – but if you believe it isn’t, RS should be changed, instead of granting artificial privileges to shareholders in corporations. There is no valid reason to distinguish between the two forms of ownership in this respect. What holds for one as a general rule should hold for the other.

See Hessen’s comments above re vicarious liability. I think this is a sound analysis.

Bottom line: Hessen solved all this back in the 1970s. Critics usually ignorant of what has gone before keep reinventing the same critiques, that have already been addressed.

“I believe I was pointing out that if you say a shareholder is necessarily liable”

Strawman – I never, not once, claimed automatic liability. In fact, I have, from the beginning, only argued AGAINST automatic immunity, which is what current corporate law provides.

Does it? If an employee–say a truck driver of FedEx–is also a shareholder, and negligently runs over someone, does his status as a shareholder immunize him? Nope.

You keep trying to rotate the positions, but it doesn’t work. YOU are defending an absolute position. I’m merely arguing that corporations, as they exist, posess privileges that they wouldn’t absent the state.

Shareholders *per se* do not seem to exert enough control to be liable vicariously. The shareholders that do exert enough control, ought to be liable.

“Perhaps–but that is not merely because they are sharehodlers–it’s b/c of particualrthings they did in this case–and how would this theory implicate those who voted against the CEO, or who didn’t vote (anyway shareholders elect the directors, who hire the CEO).”

Exactly. And under current law, none of this is considered. You can only get this far if you first jump through the hoops of “piercing the corporate veil.”

But I am not defending this aspect of corporations. So long as people would be free in private society to (a) limit shareholder’s contractual liability for debts of the corporation; and (b) not be held to be automatically responsible vicariously for actions of the company’s employees merely becuase they are shareholders, then we have the seed of a simalcrum of a corporation.

You can’t seem to get past the point that you are defending an entity, as it currently exists, that doesn’t.

You seem to not be able to get past the convenient use of legal fictions. It’s just a way of conceptually dealing wtih something. It’s not like it hast o have a platonic essence.

Shareholders currently have no liability for how they use their share rights, unless they fail to respect the corporate identity. You consistently claim that this is just peachy in your world,

No. What i claim is that in a free society I see no problem with shareholders having a form of limited liability, even for torts, becuase being a shareholder does not in and of itself mean you are necessarily actively controlling what the tortfeasors do. I also see no problem holding a particular shareolders–or director, or manager, or lender, or customer, or vendor, or employee, or wife of the CEO–liable vicariously for the acts of a particular employee, if it can be shown that there is sufficient causal connection. I only maintain that merely being a shareholder is not sufficient. The libertarian critics of the corporation implicitly rest their critique on the idea that *merely* being an “owner” is sufficient. that is what i deny. ARe you now retracting this? Note that Gabb, above, does imply this.

In any event–as Hessen also points out:

Regardless of one’s view about limited liability for torts, the whole issue is irrelevant to giant corporations, which either carry substantial liability insurance or possess sizeable net assets from which claims can be paid.

Let’s step back and see if you agree with my summary so far, and see what you disagree with:

uncontested:

1. sole proprietorships and corporations are treated differently with respect to liability for employee actions. Sole proprietors have respondeat superior, while shareholders have limited liability.

2. Limited liability has no connection to the concept of causation. Piercing the corporate veil is not based on determining whether there was control or causation, rather it merely attempts to determine if the shareholder didn’t respect the corporate identity.

3. Respondeat superior may or may not be justified as to sole proprietors (and therefore corporations as well) – but if you believe it isn’t, RS should be changed, instead of granting artificial privileges to shareholders in corporations. There is no valid reason to distinguish between the two forms of ownership in this respect. What holds for one as a general rule should hold for the other.

Any problems with that?

(Ray Bolger had an important role in the Wizard of Oz)

All of which leads us to:

“I believe I was pointing out that if you say a shareholder is necessarily liable”

Strawman – I never, not once, claimed automatic liability. In fact, I have, from the beginning, only argued AGAINST automatic immunity, which is what current corporate law provides. You keep trying to rotate the positions, but it doesn’t work. YOU are defending an absolute position. I’m merely arguing that corporations, as they exist, posess privileges that they wouldn’t absent the state.

“Perhaps–but that is not merely because they are sharehodlers–it’s b/c of particualrthings they did in this case–and how would this theory implicate those who voted against the CEO, or who didn’t vote (anyway shareholders elect the directors, who hire the CEO).”

Exactly. And under current law, none of this is considered. You can only get this far if you first jump through the hoops of “piercing the corporate veil.”

“Of course it has an owner. Or owners. It’s divided; it does not rest all in the hands of shareholders (or not necessarily). As I pointed out: can the shareholders use the corporate jet? No. CAn the company sell all its assets? No, not if the bank has covenants or liens preventing it. Etc. Ownership–the right to control–is spread among many entities. Deal with it.”

I have dealt with it. You can’t seem to get past the point that you are defending an entity, as it currently exists, that doesn’t. As in this statement:

“I am not so sure you are right.”

After you spent your first several paragraphs excoriating leftist and agrarians for their supposed inability to present a coherent defense of their vision, you come up with that? You’re going to the mat to defend corporations as they exist based on that? Okay…

Let’s put out there again, nice and slowly -

Shareholders currently have no liability for how they use their share rights, unless they fail to respect the corporate identity. You consistently claim that this is just peachy in your world, while out the other side of your mouth claiming that the only issue should be causation (“Of course in some cases this can be shown. Sure, why not? I just say it’s not automatic.”) Surprise! – I agree with the second statement (“I am not arguing for automatice liability. I’m merely arguing against automatic immunity.”) (nice spelling on my part, BTW). Just not the first. In that vein, as I’ve already clearly stated above, both RS and limited liability serve only to confuse the question.

Person -

Answered several times. In fact, just re-read the exchange between NSK and myself, and it is addressed at least 3 times over. In fact, I have clearly stated several times what my standard would be (hint, that helps other people actually determine what you mean when you argue – I know someone who fails to do this repeatedly in the IP context…)