Limited liability is where a person's financial responsibility is limited to a fixed amount, generally the value of one's investment in a company or partnership. If a company with limited liability is prosecuted, the plaintiff demands the company, not the owner or the investor. A shareholder in a limited company personally is not responsible for the debt of the company, other than for the amount already invested in the company and for the unpaid amount of shares in the company, if any. The same applies to members of a limited partnership and limited partners in a limited partnership. In contrast, sole proprietors and partners in a general partnership are each responsible for all business debt (unlimited liability).
If the shares are issued "paid-in" part, then the shareholder is responsible, when the claim is made against the company's capital, to pay to the face equity company or the nominal value of the shares.
Although shareholder liability for corporate actions is limited, shareholders may still be responsible for their own actions. For example, directors of small companies (often shareholders) are often asked to provide personal guarantees of corporate debt to those who lend to the company. They will then be liable for those debts if the company can not pay, although the other shareholders will not be held liable. This is known as a joint signing.
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History
In the fifteenth century, British law has given limited responsibility to the monastic community and the guild trade with publicly owned property. In the 17th century, the joint stock charter was awarded by a crown to a monopoly like the East India Company. The first modern world first accountability law was enacted by the state of New York in 1811. In England it became easier to incorporate joint-stock companies after the Joint Stock Companies Act of 1844, even though investors in those companies carried unlimited liability until with the Limited Liability Law of 1855.
There is a degree of public and legislative hatred for the limitation of responsibility, with the fear that it will lead to a decrease in honesty standards. The 1855 Act allows limited liability for companies with more than 25 members (shareholders). Insurance companies are excluded from the law, although it is a standard practice for insurance contracts to exclude actions against individual members. Limited liability for insurance companies is permitted by the Companies Act 1862. The minimum number of members required for registration as a limited company is reduced to seven by the Companies Act 1856. Limited companies in England and Wales now require only one member.
Similar legal regulations also apply in France and in most US states in 1860. In the last quarter of the nineteenth century, most European countries have applied the principle of limited liability. The development of limited liability facilitates moving to large-scale industrial enterprises, eliminating the threat that the total wealth of individuals will be confiscated if invested in unsuccessful companies. A large amount of personal finance capital becomes available, and the transfer of shares allows the level of business sustainability impossible in other corporate forms.
In the UK there was initially the widespread belief that a company needed to show its credit worthiness by having its shares partially paid, because where a partial share was paid, the investor would be liable for the remaining nominal value in case the company could not repay its debt. Shares with a nominal value of up to Ã, £ 1,000 therefore subscribe with only small payouts, leaving even limited investors with potentially devastating obligations and limiting investments to very rich ones. During the crisis of Overend Gurney (1866-1867) and Long Depression (1873-1896) many companies fell into bankruptcy and unpaid portions of the matured shares. Further, the extent to which the small and medium-sized investors are excluded from the market are accepted and, from the 1880s onward, more commonly paid full shares.
Although it is acknowledged that those who are mere investors should not be responsible for the debt arising from the management of the company, throughout the late nineteenth century there were still many arguments for unlimited accountability for managers and directors of the French model. > sociÃÆ' Â © tÃÆ' Â © en commandite . Such responsibilities for the directors of British companies were abolished in 2006. Furthermore, it became increasingly common from the late nineteenth century for shareholders to become directors, protecting themselves from responsibility.
In 1989, the EU enacted the Twelfth Company Law Regulation, which requires member states to provide the legal structure for individuals to trade with limited liability. It is implemented in England and Wales by Statutory Instrument SI 1992/1699 which allows limited companies with single-member.
In the United States, decentralized corporate legislation and interstate rivalries for corporate charters and investments led to the widespread adoption of limited liability freely available beginning in the 1800s and culminating in the early 1900s. However, limited liability has been limited in certain contexts such as environmental responsibility or (in some states) employees pay back unpaid wages.
Maps Limited liability
Justification
Limited liability is related to the concept of separate legal personality given to the form of company, promoted as encouraging entrepreneurship by various economists, allowing large quantities to be pooled toward economically advantageous goals.
Criticism
An early critic of limited accountability, Edward William Cox, a member of the Conservative Party's lifetime, wrote in 1855:
[T] the hearts of those acting through the agent shall be responsible for the actions of his agent, and that he who shares the profits of a company shall also be subject to its loss; that there is a moral obligation, which is a civilized state's legal obligation to uphold, pay debts, contract and make mistakes. Limited accountability is based on opposing principles and allows one to take action on his own if it is to his advantage, and is not responsible for them if they are to be harmed; to speculate on profits without having to bear losses; to make contracts, incur debts, and make mistakes, laws that robbers creditors, contractors, and people who are harmed from drugs against property or persons of the offender, beyond the limits, however small, where it can please him to determine his own responsibility
Some critics argue that limited liability benefits creditors who are in a position to negotiate guaranteed terms, while small creditor debt is left unsecured. Others argue that while some limited liability is favorable, privileges should not include responsibility in a lawsuit resulting from an environmental disaster or personal injury.
Some argue that limited liability provides investors with benefits such as insurance, without the cost of insurance premiums or safety rules that usually accompany insurance, and therefore it is advisable to charge the company for limited liability, a level that reflects the risk of limited liability that imposes costs on the government or community. Critics also argue that this will speed up the dissemination of information about the risks that are poorly understood.
Anarcho-capitalist Murray N. Rothbard, in his book Power and Market (1970), criticized the need for limited liability law, observing that similar arrangements arise on mutual and voluntary agreements on the free market:
Source of the article : Wikipedia
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