Incorporated Bodies and Limited Liability

Link to the documentary? I would like some more info before I say what I am thinking.

I have added a link to the version of The Corporation hosted on Archive.org. As Pirates we observe the effect of corporations in fields like software (eg Microsoft) and entertainment (eg Hollywood), but it's easy to think these are exceptions. This documentary uses case studies to show the same pattern of anti-social actions in every field corporations operate in, and uses the rhetorical tool of classifying what kind of personality type corporate "persons" exhibit to explain the structural causes behind this pattern. It's essential viewing, and I don't say that lightly.

The reason why companies are limited liability are so that there is a multiple person structure which isn't unlimited liability as far as loosing your family house in the event of your business failing in the first 3 years.
I would argue that anyone who wanted to have a small business to support their family such as my father, or my chemist, or my greengrocer, or the local baker, or the barber... would not risk losing their house on the high chances that their business fails in the first 3 years.

When a business has limited liability, it is entirely around not risking their personal possessions for the failure of their business.
If you forced businesses to trade without limited liability, instead opting to go for non-profit status, then I'm sure our contacts at Xero would welcome the chance to incorporate "Hollywood accounting" into the next update of Xero and actively make fiddling the books a national pasttime of every tradesman, rather than just the multinationals.

You make a fair point @andrewmcpherson . I would point out that not all start-up businesses have limited liability, sole traders don't, and AFAIK partnerships don't either, only businesses who operate a registered company (whether private company, cooperative company, or public company). Being a registered company adds a lot of constraints and extra admin obligations for small businesses, unlike corporations, who as you point out can afford the armies of lawyers and accountants to hack around them. For example, you can't operate a company if you are receiving any kind of benefit from Work and Income.

Perhaps I'm getting confused between financial liability and legal liability with regard to what "limited liability" means in practice. I need to do some more research and thinking about this. @adambullen 's points about liability insurance are interesting, although in the case of some corporate-driven practices like GMOs, calculating the potential risks and remedial costs proved too difficult, and the insurance industry refuse to give insurance for them at all.

I would point out that not all start-up businesses have limited liability, sole traders don't, and AFAIK partnerships don't either, only businesses who operate a registered company (whether private company, cooperative company, or public company). Being a registered company adds a lot of constraints and extra admin obligations for small businesses, unlike corporations, who as you point out can afford the armies of lawyers and accountants to hack around them. For example, you can't operate a company if you are receiving any kind of benefit from Work and Income.

Sole traders are typically only used where it's a one man band that trades under the person's name, which used to be popular in the days of chequebooks, where a cheque would be written to the person, and they could put it into their business account or their personal account without worrying about formalities.
Limited liability exists mainly for businesses which are considered as not wanting to bet the house on success, of which there is about 1/3 chance of lasting 3 years, possibly less depending on the industry of the business.

Perhaps I'm getting confused between financial liability and legal liability with regard to what "limited liability" means in practice. I need to do some more research and thinking about this. @adambullen 's points about liability insurance are interesting, although in the case of some corporate-driven practices like GMOs, calculating the potential risks and remedial costs proved too difficult, and the insurance industry refuse to give insurance for them at all.

We would have no issues with legal liability of the executives of the company being strengthened, notably in cases of injury or worse. However, financial liability for business failure is not a good idea and would only increase unproductive law students to practise chanting "sue him, sue him, sue him for all he's got !".

Thanks for sharing your experiences Andrew. I'm definitely fudging together legal and financial liability. This is a good example of why it's important to understand the context of how a word is being used, and avoid etymological fallacies :) Also a good example of how well-meaning public policy suggestions can have negative unintended consequences.

You've convinced me that my initial suggestion is undercooked. I think solving the structural problem has more to do with moving away from centralized forms of investment, as discussed by Doug Rushkoff, Vinjay Gupta, and Mike Hearn (former BitCoin developer).

It might not work for traditional family businesses to have a co-op

Worker-owned coops haves worked pretty well for SemCo (see also the son of the founder's book 'Maverick') and South Mountain Company (see the founder's excellent book 'Companies We Keep'), but I take your point, it may not be for everyone. Incidentally, I've read that like coops, the stats for family-owned private companies surviving downturns are also better than those for shareholder-owned ones, and that the family firms are less likely on average to shed staff in troubled times.

Removing the protection of limited liability will suppress the economy and entrench existing large businesses that can afford teams of lawyers and to pay settlements.

I agree with Andrews comment about Hollywood accounting.

Making professional indemnity and public liability insurance compulsory.

Remove the ability for someone to dissolve and create business in the same field in a short time frame. This is a classic trick of dodgy builders; who don't want past mistakes to come back and bite them.

Another point is that there are other, potentially better ways of avoiding the risk of your Dad losing his shirt in a business failure. Sharing ownership of a start-up business with all its workers (a worker-owned coop), its customers (a customer-owned coop), or some combination of both, has been shown to vastly reduce the failure rates of new businesses. It also spreads the risk among a group of people, which means its very unlikely any of them will have to sell their home to pay the failed businesses debts. I've written about this in more detail on my blog, in relation to the OOOBY (Out of Our Own Back Yards) model of supplying local food via an online ordering platform.

It's a generation too late, my dad has already been on the pension for long enough that he is actually considering winding down his business now that I am seeking investors for one of my own.
It might not work for traditional family businesses to have a co-op where the children are equal partners, and most family businesses tend to be run by one parent with another in independent work to assure income is at a reliable level and the business is added income.
In my experience, family businesses are usually run as a trade that the children may work at so they have something interesting to do after school.

The exception of course are the more successful family businesses which tend to be both parents and children after school, typically these businesses bring in enough revenue for the entire family, possibly even the extended family.