Limites liability

Topics: Corporation, Limited liability, Limited liability partnership Pages: 35 (11061 words) Published: February 27, 2014
Draft

Limited Liability, Rights of Control and the Problem of Corporate Irresponsibility
Paddy Ireland

Abstract
There is has long been a tendency to see the corporate legal form as presently constituted as economically determined, as the more or less inevitable product of the demands of advanced technology and economic efficiency. Through an examination of its historical emergence, focusing in particular on the introduction of general limited liability and the development of the modern doctrine of separate corporate personality, this paper takes issue with this view, arguing that the corporate legal form was, and is, in large part a political construct developed to accommodate and protect the rentier investor. It is, moreover, a construct which institutionalizes irresponsibility. Against this backdrop, different ways of trying to resolve the problem of corporate irresponsibility are explored. The key, the paper suggests, is to be found in decoupling the privilege of limited liability from rights of control.

Key Words
Corporate governance; corporate irresponsibility, limited liability; rentier investment

p.w.ireland@kent.ac.uk

Paper first delivered at the Corporate Accountability, Limited Liability and the Future of Globalisation Conference, SOAS, July 2007

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Limited Liability, Rights of Control and the Problem of Corporate Irresponsibility
Paddy Ireland
Free incorporation by registration came to Britain in 1844, followed in 1855 by general limited liability, putting in place two of the central elements of the corporate legal form which has come to dominate business organisation around the world. There has long been a tendency to see the emergence of the corporate legal form as not requiring much in the way of explanation. It is widely seen, as one group of corporate law scholars recently put it, as `induced by economic exigencies’ (Kraakman et al, 2004, p. 1). Its key elements - legal personality, limited liability, transferable shares, delegated management and shareholder primacy - are thought to be economically indispensable, so much so that `corporate law everywhere must, of necessity, provide for them’ (pp. 1, 215). It is this belief that underlies the recent claim that we have reached `the end of history for corporate law’; that, driven by economic forces, corporate law around the world is converging on a shareholder-oriented model of the corporation with the same essential legal features (Hansmann and Kraakman, 2001). The view that the corporate legal form as presently constituted is a product of economic imperatives is underlain by a very particular account of its historical emergence. In industrialised and industrialising economies, this account suggests, the joint stock company (JSC) is the `natural’ – meaning most economically rational and efficient - organisational form for businesses. Unlike the `ordinary’ partnership, the JSC is a business association built not around a relatively small group of specific people but around a capital fund composed of freely transferable shares owned by a large and fluctuating body of company members. It is this, together with its separation of ownership and management, that gives the JSC the ability to unite small capitals and to aggregate the large amounts of capital demanded by competitive production in a technologically advanced world. In order for JSCs to be formed and to function, however, they need to be provided with a suitable legal framework. Most importantly, they need corporate status to give the company a separate legal existence from that of its constantly changing membership, and limited liability to enable the company to attract capital from investors who will not be actively involved in management. Given its economic superiority, explaining the rise to dominance of the JSC requires little more than an examination of the processes whereby a framework of this sort was provided and the legal, political and cultural impediments to the JSC...

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