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Comment by ok_dad | Hacker News Reader

I, too, wish I could just give my friend all my assets sans my liabilities, jump into a new body, then have them give it back to me and avoid paying for my mortgage and other loans. I am glad to see this ruling and hope it sticks as hard as possible, and new laws are written to prevent this in the future. I've always believed that corporations should be subordinate to humanity and even individual humans in law, or else what are corporations for? They should be serving humans, not vice versa. If a corporation starts to harm people, it should be taken out back and shot.

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well you can do that, you should have had the LLC before you accumulated assets and debts in your personal name. then you can get the same privilege, to an extent.

LLCs are more of a deterrent to an effective judgement than an absolute shield. But there is still tons you can do with a few thousand dollars, instead of imagining this is the playground for multimillion/billion dollar corporations.

As far as I understand, LLC’s shield from contractual obligations, not from things like negligence or fraud.

they shield the shareholders from criminal and civil liability for the actions of their employees. if the shareholder committed a liable act personally then the existence of an LLC would not shield them. The LLC/corporation shields them from liability for the actions of the (agents of the) corporation that they own.

That doesnt work in practice though. Personal guarantees are virtually always required for small business debt. It's not until you reach a certain size that you can push back on that requirement.

When the state you formed your LLC in lets you register it to a PO box nearby, and the state your PO box and the plaintiff is in doesn't let them serve a PO box then it costs them more to get around that

all for them to find out its own by a trust, or a retirement plan, or something they’ll need further help in leveraging a judgement against

Its a deterrent, like I wrote

If they’re dedicated you may have liens against your personal assets

Its lightyears better than someone showing up at your doorstep and serving you personally and everything immediately being vulnerable

That's not how an LLC works. If you buy a house in an LLC and stop paying the mortgage, the bank still takes the house away.

That wasn't the argument but probably helpful for someone

This why you need to do this with 100 houses or 1000 perhaps. The Too Big to Fail gambit.

I feel like we need to back off the shareholders are immune from liability by a quarter turn. In particular fine the shareholders with voting rights not the company. And not the ones that currently own the stock, the ones that did when the company did something bad.

Shouldn't the current shareholders be responsible for looking into potential liabilites?

If I buy stock in a game company and the next day it releases a new game that tanks I didn't own stock when the game was developed.

If you don't limit the liability, you will see the stock market die.

This would be more a case of you buying stock on the game company, and the next day somebody discovering that the previous dividends were fraudulent and only happened because the company stole 100 times more than its market value, and then you being on the hook for paying 100 times more than the stock price as restitution.

I do agree that the liability limitation is currently too strict. But it can't just be removed.

But that's new information. The talc issue has been known for years. How serious or what the monetary outcome would be was not known but should have been a calculated risk for those purchasing stock

If I was short the company at the time of the bad behavior, presumably I should get a pro-rated share of the fine paid directly to me (because there are more long shareholders who would each owe a portion of the fine).

that's not how fines are supposed to work. Fines aren't monies owed. Fines are monies as deterrent. Since a corporation's purpose is to acquire monies. I'm for fining the voting shareholders in proportion to their holdings but to pay the shorters is not something I would get behind. Those that are shorting are betting against the company and so fines/bad pr/etc are already movements in their favor.

But the shorts have created additional shares (and therefore additional proportions of fines). If there are 100 shares of a company outstanding and the company is fined $1M, each shareholder owes $10K to cover the fine.

Now, in a world where someone has shorted 10 shares, there are now 110 shares held long, meaning the total fines paid would be $1.1M, leaving $0.1M available to pay to the shorts.

My point about proportion of holdings is that if a company is fined $1M to the shareholders and there are 1,000 voting shares held, not every holder is holding 1. Some are holding more than 1. Some are holding 400 or more. So the formula would be:

owed = ($1M / total_voting_shares) * (holding_shares / total_voting_shares)

Shorts do not create shares that way; they're shares that have been borrowed, which means they've temporarily changed hands. Consider for voting. If you've borrowed shares from someone else over the time period that determines voting rights, only one of you gets to actually vote - you haven't magically created new votes in the process.

The shares are borrowed, but not always with the knowledge of the original shareholder. So should one owner get excluded from the fine just because their broker happened to loan out their shares and not the shares of another equally eligible holder? Opposite thing happens with dividends and the original holder is still entitled to those.

(And the original holder is due the dividends because the short is required to pay the dividends.)

As an investor, how am I supposed to know about various pieces of malfeasance by a company? Is it in their quarterly earnings announcements? Are they required to give me tours of their factories to whatever extent I feel?

I agree with your concern and aims, but there really isn't a window between when normal investors find out, and when the general public does. The board, executives, etc. are a different story.

I think if you have enough influence to vote in policies the company performs, you should have some responsibility if it can be proven you're benefiting from illegal behavior from the company. Potentially in the form of having those returns taken back from you, because they're effectively stolen from society, in the same way that I shouldn't get to keep a stolen TV because someone I loaned money to regularly decided to pay me back via this cool new TV that I didn't inquire the source of.

All corporate structures that I’m aware of give voting rights to all shareholders, in proportion to the number of shares they have. Some companies like Google and Meta give more votes to different types of shares.

With the popularity of ETFs and mutual funds, any American with a retirement fund has voting rights in the 500, and probably more public companies.

The proper way to do things is properly penalizing the company sufficiently to affect the share price.

> With the popularity of ETFs and mutual funds, any American with a retirement fund has voting rights in the 500, and probably more public companies.

You do not receive voting rights when you hold index funds, ETF or otherwise. You only get to cast your own votes if you are an individual shareholder. Your index fund votes get voted by the fund runner.

Ahh, fair point.

Still, I'm skeptical that most shareholders have the ability to affect whether or not a company decides to commit criminal actions.

I agree, particularly in the case of companies where institutions own a majority of the shares (which is more than you’d expect, TWTR had something like 70-80% institutional ownership before going private)

That's why I said voting rights. If the if index fund managers find themselves on the hook for stocks they used to hold they'll take a much bigger interest in the CEO and Boards shenanigans.

as an investor, it is your responsibility to be informed as to what people are doing with your money. the entire purpose of liability limitations is to make it so people don't need to do that because all they have risked is money.

Yes, limited liability is an unfair subsidy to corporations over individuals.

Well that's an incentive/reward for private people taking on risky ventures to accomplish the objectives of the state. Too bad they took out the work requirement and it just became welfare.

> fine the shareholders with voting rights not the company

This would turn every fine into a Madoff-trustee clusterfuck. Instead of collecting a fraction of the fine at a multiple of the cost, just fine the company more. Practically every creative solution to corporate malfeasance (apart from fraud) is inefficient in comparison to bigger fines.

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