Why Do Corporations Get FREE Limited Liability Protection?

[eniwetok]

The Right wants us to believe that the rich make all their money on their own and who can dispute that hard work and brilliant ideas don't give one an edge in a competitive market? But beneath the surface there are plenty of government freebies that I'd argue vastly contribute to the creation of the uber-rich... freebies like intellectual property monopolies, copyrights, and trademarks... and doesn't Trump claim his "brand" is worth 3 billion? But there are also the benefits of incorporation making it easy to aggregate capital... and its FREE limited liability protection. This protects the private wealth of corporate owners (including shareholders) in the case of corporate bankruptcy even if it screws legitimate creditors.

WHY ISN'T THIS PURCHASED AS INSURANCE FROM THE PRIVATE SECTOR? In this way creditors WOULD be protected.

I can see why the Right will never mention any of the above because they need the Big Lie of individual initiative as a key defense against progressive taxation.

BUT WHY DON'T THE DEMS MAKE THIS ARGUMENT IN DEFENSE OF PROGRESSIVE TAXATION? I know Obama got beat up for his "you didn't make that" comment. But still this IS a legitimate and potentially vital narrative in defending high progressive tax rates.

[beachbum bob]

1. the whole purpose of a corporation.....nothing will change that I am afraid

[eniwetok]

3. The purpose of the corporation is usually in its charter

A corporation is a useful legal entity... be it for a non-profit or a for-profit entity. But your comment really doesn't address the question of WHY we give corporations free limited liability protection.

A friend of mine showed up at work one day to find the gate chained.... the company had declared bankruptcy. The owner left the old mills and brownfields for the taxpayers to deal with. In the mean time his private assets... his McMansion etc, were protected. There's something wrong with this picture.

[AJT]

2. And isn't the excuse for high pay at the top supposed

to be tied to risk? What risk of personal loss do CEOs take? They make the money win or lose.

[eniwetok]

4. but I believe past profits are protected from clawbacks...

I believe that the profits shareholders made... from asbestos or tobacco etc, are also protected from clawbacks.

[KittyWampus]

5. You don't know what limited liability is. It means when a corporation is sued for damages,

financial liability is limited to the corporation and not shareholders.

You think individuals who own stock in a company should be held financially liable? Does that include working people who own stock through IRA's, 401K's and investment funds?

And to suggest that trademarks are "freebies" means you think inventors and researchers should just do their work for fun? What about artists and musicians?

[eniwetok]

6. It's ALSO about bankruptcy....

Never heard of Chapter 7 liquidation? I only brought up shareholder clawbacks to illustrate a point that this IS another free protection.

But getting back to CH7... Here's a study from the Kansas City branch of the Federal Reserve that says between 1970 and 2008 the mean creditor recovery rate actually is only about 39%...

http://www.kc.frb.org/publicat/econrev/pdf/12q2Mora.pdf

Here are some mean recovery rates by industry
Agriculture, Forestry and Fishing 39.9%
Mining 50.8%
Construction 28.7%
Manufacturing 43.7%
Transportation 32.7%
Communications 39.6%
Utilities 57.5%

SO WHY IS THIS PROTECTION OF PRIVATE ASSETS PROVIDED FOR FREE INSTEAD OF AS INSURANCE FROM THE PRIVATE SECTOR? This is a GIFT from We The People... and we should explore WHY we give it... and what price do we expect back in return.


As for intellectual property monopolies... I support them to a point stated in the Constitution. It's right there in Art 1 sec 8 "To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;" This would SEEM to limit profits to some reasonable level that's just enough to promote progress. But that's another matter.

BUT YOU'RE MISSING THE POINT... which is right there in the OP... something you seem determined NOT to discuss...

The Right wants us to believe that the rich make all their money on their own and who can dispute that hard work and brilliant ideas don't give one an edge in a competitive market? But beneath the surface there are plenty of government freebies that I'd argue vastly contribute to the creation of the uber-rich... freebies like intellectual property monopolies, copyrights, and trademarks... and doesn't Trump claim his "brand" is worth 3 billion?


Then there's the question of

WHY DON'T THE DEMS MAKE THIS ARGUMENT IN DEFENSE OF PROGRESSIVE TAXATION? I know Obama got beat up for his "you didn't make that" comment. But still this IS a legitimate and potentially vital narrative in defending high progressive tax rates.

[eniwetok]

7. where the 5th and corporate bankruptcy collide...

Here's an area I've found curious... where bankruptcy and the 5th collide. Congress was charged with developing bankruptcy laws under Art 1

To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

And we can see a need for this when it comes to personal bankruptcy.

But as far as I know the limited liability corporation wasn't even created yet and if memory serves... it starts in NY around 1817ish.

And here's where I think it conflicts with the 5th.... which says

No person.... nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

But when the government comes in to protect private wealth of corporate owners in the case of corporate bankruptcy... those creditors ARE being deprived of their "property"... ie payment, when the personal property of the corporate owners is safely hidden behind the corporate form. This certainly doesn't mean the government should take ALL the personal property of corporate owners... but I can find no constitutional basis for the limited liability corporation.