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Doctrines
Corporate governance
Limited liability · Ultra vires
Business judgment rule
Internal affairs doctrine
De facto corporation and
corporation by estoppel
Piercing the corporate veil
Rochdale Principles
Related areas of law
Contract · Civil procedure

Limited liability is a concept whereby a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership with limited liability. Companies law (or the law of business associations) is the field of Law concerning business and other organizations Generally a company is a form of Business organization. The precise definition varies A business (also called firm or an enterprise) is a legally recognized organizational entity designed to provide goods and/or services to A sole proprietorship, or simply proprietorship ( Benjamen Clark For partnership in cricket terminology see List of cricket terms A partnership is a type of Business entity in which partners In the commercial and legal parlance of most countries a general partnership or simply a Partnership, refers to an association of persons or an unincorporated A limited partnership is a form of Partnership similar to a General partnership, except that in addition to one or more general partners (GPs there are A limited liability partnership (abbreviated as LLP) has elements of Partnerships and Corporations. A corporation is a separate legal entity usually used to conduct business An S corporation or S-corp, for United States federal income tax purposes is a Corporation that makes a valid election to be taxed under Subchapter S of A C corporation (or C corp) is a Corporation in the United States that for Federal income tax purposes, is Taxed under and Subchapter C ( et A limited liability company (abbreviated LLC or LLC) in the law of the vast majority of the United States is a legal form of business Company The limited liability limited partnership (LLLP is a relatively new modification of the limited partnership a form of Business entity recognized under U A Series LLC is a special form of a Limited liability company that provides liability protection across multiple "series" each of which is theoretically protected A Nevada Corporation is a Corporation chartered under the Laws of the U A Massachusetts business trust or MBT is a legal trust set up for the purposes of business but not necessarily in the state of Massachusetts. A limited company in the United Kingdom is a Corporation whose liability is limited by law A private company limited by shares is a type of company incorporated under the laws of England and Wales, Scotland, that of certain Commonwealth countries In British or Irish Company law, a company limited by guarantee is an alternative type of Corporation used primarily for Non-profit A Public Limited Company ( PLC, plc or plc or p l c is a type of Limited company in the United Kingdom or the Republic of Ireland which is A proprietary company is a form of Corporation in Australia that is limited by Shares. A community interest company (CIC is a new type of company introduced by the United Kingdom government in 2005 under The Community Interest Act 2004, designed The European Economic Area ( EEA) came into being on 1 January 1994 following an agreement between member states of European Free Trade Association (EFTAthe The Council Regulation on the Statute for a European Company of the European Union was adopted October 8 2001. TemplateExpert and TemplateExpert-subject, has been modified to include two WikiProjects and Portals (Expert-subject is limited to Aktiebolag (literally " share Company " or " Stock Company " is the Swedish term for " Limited Aktiengesellschaft ('aktsiəngəzεlʃaft abbreviated AG) is a German term that refers to a Corporation that is limited by shares i An ansvarlig selskap is a Norwegian personal responsibility Company model mainly used in small-to-medium businesses which translates directly into "Responsible An Aktieselskab (abbreviated A/S) is the Danish name for a Stock -based Corporation. Aksjeselskap is the Norwegian term for a Stock -based Company. Gesellschaft mit beschränkter Haftung ( GmbH) is a type of legal entity very common in Germany (where it was created in 1892 Austria nl '''''Naamloze Vennootschap''''' (usually abbreviated NV) is the Dutch term for a Public Limited liability Corporation. Osakeyhtiö, literally a " stock company " is the Finnish equivalent of a Limited company ( Ltd or LLC) or Gesellschaft For the art organization see Société Anonyme (art SA generally designates Corporations in various countries mostly those employing There are many types of business entity defined in the legal systems of various countries Corporate governance is the set of Processes customs Policies, laws and institutions affecting the way a Corporation is directed administered or controlled Ultra vires is a Latin phrase that literally means "beyond the powers" The business judgment rule is an American Case law -derived concept in Corporations law whereby the "directors of a corporation. The internal affairs doctrine is a Choice of law rule in Corporations law. De facto corporation and corporation by estoppel are both terms that are used by Courts to describe circumstances in which a business organization that has The corporate law concept of piercing (lifting the corporate veil describes a legal decision where a shareholder or director of a Corporation is held liable for the The Rochdale Principles are a set of ideals for the operation of Cooperatives. A contract is an exchange of promises between two or more parties to do or refrain from doing an act which is enforceable in a court of law Civil procedure is the body of law that sets out the process that Courts will follow when hearing cases of a civil nature (a " Civil action " as opposed to A shareholder in a limited company is not personally liable for any of the debts of the company, other than for the value of his investment in that company. A mutual shareholder or stockholder is an Individual or company (including a Corporation) that legally owns one or more shares of A limited company in the United Kingdom is a Corporation whose liability is limited by law The same is true for the members of a limited liability partnership and the limited partners in a limited partnership. A limited liability partnership (abbreviated as LLP) has elements of Partnerships and Corporations. A limited partnership is a form of Partnership similar to a General partnership, except that in addition to one or more general partners (GPs there are [1] By contrast, sole proprietors and partners in general partnerships are each liable for all the debts of the business (unlimited liability). A sole proprietorship, or simply proprietorship ( Benjamen Clark In the commercial and legal parlance of most countries a general partnership or simply a Partnership, refers to an association of persons or an unincorporated

Although a shareholder's liability for the company's actions is limited, the shareholder may still be liable for its own acts. For example, the directors of small companies (who are frequently also shareholders) are frequently required to give personal guarantees of the company's debts to those lending to the company. They will then be liable for those debts in the event that the company cannot pay, though the other shareholders will not be so liable. This is known as co-signing.

Contents

History

In the UK, it became more straightforward to incorporate a joint stock company following the Joint Stock Companies Act 1844, though investors in such companies carried unlimited liability until the Limited Liability Act 1855. The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located Incorporation (abbreviated Inc in US and Canadian business names is the forming of a new Corporation (a corporation being a legal entity A joint stock company (JSC is a type of business entity it is a type of Corporation or Partnership. The Joint Stock Companies Act 1844 (7 & 8 Vict c 110 was an Act of the Parliament of the United Kingdom that expanded access to the incorporation For the history of introduction of the Act and early experience with its application see Limited liability History. There was a degree of public and legislative distaste for a limitation of liability, with fears that it would cause a drop in standards of probity. [2][3][4] The 1855 Act allowed limited liability to companies of more than 25 members (shareholders). Insurance companies were excluded from the Act, though it was standard practice for insurance contracts to exclude action against individual members. Insurance, in Law and Economics, is a form of Risk management primarily used to hedge against the Risk of a contingent loss Limited liability for insurance companies was allowed by the Companies Act 1862. The minimum number of members necessary for registration as a limited company was reduced to seven by the Companies Act 1856. Limited companies in England and Wales now require only one member. [5]

Similar statutory regimes were in place in France and in the majority of the U.S. states by 1860. This article is about the country For a topic outline on this subject see List of basic France topics. The United States of America —commonly referred to as the Year 1860 ( MDCCLX) was a Leap year starting on Sunday (link will display the full calendar of the Gregorian Calendar (or a Leap year starting By the final quarter of the nineteenth century, most European countries had adopted the principle of limited liability.

In the UK there was initially a widespread belief that a corporation needed to demonstrate its creditworthiness by having its shares only partly paid, as where shares are partly paid, the investor would be liable for the remainder of the nominal value in the event that the company could not pay its debts. Credit risk is the risk of loss due to a debtor's non-payment of a Loan or other line of credit (either the principal or Interest (coupon or both Faced Shares with nominal values of up to £1,000 were therefore subscribed to with only a small payment, leaving even a limited liability investor with a potentially crushing liability and restricting investment to the very wealthy. During the Overend Gurney crisis (1866-1867) and the Long Depression (1873-1896) many companies fell into insolvency and the unpaid portion of the shares fell due. Overend Gurney & Company was a London wholesale discount Bank, known as "the bankers' bank" which collapsed in 1866 owing about 11 The Long Depression ( 1873 &ndash 1896) affected much of the world and was contemporary with the Second Industrial Revolution. Insolvency means the inability to pay one's debts This is defined in two different waysCash flow insolvency unable to pay debts as they fall dueBalance sheet insolvency Further, the extent to which small and medium investors were excluded from the market was admitted and, from the 1880s onwards, shares were more commonly fully-paid. Events and Trends Technology Development and commercial production of Electric lighting Development and commercial production of gasoline-powered [6]

Though it was admitted that those who were mere investors ought not to be liable for debts arising from the management of a corporation, throughout the late nineteenth century there were still many arguments for unlimited liability for managers and directors on the model of the French société en commandite. A limited partnership is a form of Partnership similar to a General partnership, except that in addition to one or more general partners (GPs there are [7] Though such liability for directors is still permitted for directors of English companies, its abolition is planned as of 2006. [8] Further, it became increasingly common from the end of the nineteenth century for shareholders to be directors, protecting themselves from liability.

In 1989, the European Union enacted its Twelfth Council Company Law Directive,[9] requiring that member states make available legal structures for individuals to trade with limited liability. Year 1989 ( MCMLXXXIX) was a Common year starting on Sunday (link displays 1989 Gregorian calendar) The European Union ( EU) is a political and economic union of twenty-seven member states, located primarily in This was implemented in England and Wales by Statutory Instrument SI 1992/1699 which allowed single-member limited-liability companies. In Law, a Statutory Instrument is a form of delegated or Secondary legislation. [10]

Economic and social justification and criticism

Limited liability is supposed to encourage enterprise[11][12][13] but it has also been argued that it distorts the free market by allowing the entrepreneur to externalise some risk and impose it on society at large. A free market is a Market in which property rights are voluntarily exchanged at a price arranged completely by the mutual consent of sellers and buyers An entrepreneur is a person who has possession over a company enterprise, or Venture, and assumes significant accountability for the inherent risks and the outcome In Economics, an externality is an impact on any party not directly involved in an economic decision Risk is a Concept that denotes the precise probability of specific eventualities [14] Moreover, there has been some concern that present structures favour large creditors who are in the position to negotiate secured terms, whereas small creditors' debts are left unsecured. A creditor is a party (eg person organization company or government that has a claim to the services of a second party There have been calls to restrict limited liability to only non-managing investors but, as of 2006, these have been resisted in the UK. Year 2006 ( MMVI) was a Common year starting on Sunday of the Gregorian calendar. [15] The general legal response to such concerns has been to make directors liable for any dishonesty. Dishonesty is a word which in common usage may be defined as the act or to act without honesty a lack of probity to cheat lying or being deliberately deceptive lacking in [16]

There is evidence that shares in public companies would be at a disadvantage if liability were unlimited[17] and the experience of partly-paid shares in the nineteenth century (supra) seems to confirm this. A public company usually refers to a company that is permitted to offer its registered securities ( Stock, bonds, etc [18] A single counter point, limited to a narrow span of time and a single company in a growth economy, existed in the 1950s where there was a healthy market in unlimited liability American Express shares. The 1950s Decade refers to the years of 1950 to 1959 inclusive American Express ( sometimes known as " AmEx " or " Amex " is a diversified global Financial services company headquartered in [19]

The anarcho-capitalist libertarian and Austrian economist Murray N. Rothbard, in his Power and Market (1970), defended limited-liability, stating,

Finally, the question may be raised: Are corporations themselves mere grants of monopoly privilege? Some advocates of the free market were persuaded to accept this view by Walter Lippmann's The Good Society. Anarcho-capitalism (also known as Free-market anarchism) is an individualist anarchist Political philosophy that advocates the elimination Libertarianism is a term used by a broad spectrum of political philosophies which prioritize individual Liberty and seek to minimize or even abolish the The Austrian School, also known as the “ Vienna School ” or the “ Psychological School ” is a heterodox school of economics that advocates Murray Newton Rothbard (March 2 1926 – January 7 1995 was an American economist of the Austrian School who helped define modern Libertarianism Power and Market Government and the Economy is a 1970 book by Murray Rothbard in which he analyzes the negative effects of the various kinds of Government It should be clear from previous discussion, however, that corporations are not at all monopolistic privileges; they are free associations of individuals pooling their capital. On the purely free market, such individuals would simply announce to their creditors that their liability is limited to the capital specifically invested in the corporation, and that beyond this their personal funds are not liable for debts, as they would be under a partnership arrangement. It then rests with the sellers and lenders to this corporation to decide whether or not they will transact business with it. If they do, then they proceed at their own risk. Thus, the government does not grant corporations a privilege of limited liability; anything announced and freely contracted for in advance is a right of a free individual, not a special privilege. It is not necessary that governments grant charters to corporations.

In the U.S. lawyers have suggested that, while limited liability towards creditors is socially beneficial in facilitating investment, the privilege ought not to extend to liability in tort for environmental disasters or personal injury. The United States of America —commonly referred to as the Tort law is the name given to a body of law that creates and provides remedies for civil wrongs that do not arise out of Contractual duties An environmental disaster is a Disaster that is due to human activity and should not be confused with Natural disasters In this case the impact of humans' alteration A personal injury occurs when a Person has suffered some form of Injury, either physical or psychological as the result of an Accident or Medical [20][21][22]

See also

Notes

  1. ^ Hannigan 2003
  2. ^ Shannon (1931)
  3. ^ Saville (1956)
  4. ^ Amsler et al. There are many types of business entity defined in the legal systems of various countries A limited liability company (abbreviated LLC or LLC) in the law of the vast majority of the United States is a legal form of business Company A limited liability partnership (abbreviated as LLP) has elements of Partnerships and Corporations. A limited partnership is a form of Partnership similar to a General partnership, except that in addition to one or more general partners (GPs there are A corporation is a separate legal entity usually used to conduct business Rutland Barrington as Paramountjpg|right|frame|Barrington as King Paramount]] Utopia Limited, or The Flowers of Progress, is a Savoy Opera, with music by Arthur Salomon v Salomon & Co Ltd (1896 AC 22 (HL is a foundational decision of the House of Lords in the area of Company law. (1981)
  5. ^ Mayson et al. (2005), p. 55
  6. ^ Jefferys (1954)
  7. ^ Lobban (1996)
  8. ^ DTI (2005)
  9. ^ 89/667/EEC
  10. ^ Edwards (1998)
  11. ^ Meiners et al. (1979)
  12. ^ Halpern et al. (1980)
  13. ^ Easterbrook & Fischel (1985)
  14. ^ Rozeff, M. S. . Limited Liability (HTML). Retrieved on 2006-07-03. Year 2006 ( MMVI) was a Common year starting on Sunday of the Gregorian calendar. Events 324 - Battle of Adrianople Constantine I defeats Licinius, who flees to Byzantium.
  15. ^ DTI (2000)
  16. ^ Ohrnial (1982)
  17. ^ Halpern et al. (1980)
  18. ^ Mayson et al. (2005), p. 57
  19. ^ Grossman (1995)
  20. ^ Hansmann & Kraakman (1991)
  21. ^ Grundfest (1992)
  22. ^ Grossman (1995)

External links

Bibliography

Dictionary

limited liability

-noun

  1. (finance) the liability of an owner or a partner of a company for no more capital than they have invested
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