Does the entire ownership just switch over to the litigants?
As an insignificantly-minor J&J shareholder, I would be fine with a corporate death penalty. The company would be disbanded, assets and liabilities together, instead of fines and judgements putting it into actual bankruptcy.
Pretty much every formulation of "corporate death penalty" is fines, but less severe, or fines, with extra steps.
Shareholders ought to have some skin in the game to incentivize behavior that does not lead down the road of corporate death. If you allow the value to go to zero, shareholders will just turn a blind eye and write the investment off as a loss on their taxes.
If a company can't pay its debts, the shareholders should be required to pay.
We had this. For millennia. It simply makes equity impossible. Instead, you have proprietors who get loans--all investment is debt.
this is not true. investors are merely incentivized to be more careful about who they trust with their money.
Sure. And they'd be more careful by structuring investments as debt. If you're taking joint liability, you're a proprietor. Limited liability is equity's defining characteristic. Equity with liability is proprietorship. A world without limited liability is one without equity.
if I've misunderstood the thrust of your replies then I apologize.
The actual counter-example you seek is partnerships. The difference between stock and partnership is limited liability.
if you say so, but your point is hard to grasp because here are examples of people owning capital without a liability shield. And plenty of liability limited companies are also levered.
> The actual counter-example you seek is partnerships.
https://www.investopedia.com/articles/investing/090214/limit...
> The difference between stock and partnership is limited liability.
Yes, kings and lords. (Today: proprietors.) We reformed the system so more than the rich could be capitalists.
To your links: LLPs are not pure partnerships. They’re an equity-like structure with limited liability. If you are arguing against limited liability, limited-liability partnership obviously doesn’t comport.
And: joint-stock companies are not germane to your argument. They join distributed ownership (first, in the Song dynasty) with limited liability (in the West). Without limited liability, they’re analogous to a bond register.
I don’t know literature I can reference to concisely clarify this. English and Delaware law introductory texts may be good starting points. The histories of joint-stock companies, incorporation and indemnification might follow.
Writing off a loss on your taxes does not cancel out that loss, it only lessens it a bit. Shareholders still lose lots of money if the company they hold shares in goes bankrupt.
Perhaps you already understood that, but your comment makes it sound like you think tax writeoffs mean that shares can go to zero and the shareholders won't ultimately lose anything. This is very much not the case.
These are economically equivalent.
Bankruptcy doesn’t mean liquidation.
Sorry, I meant that if one applies many popular theories of how a "corporate death penalty" should work, the company would be liquidated. With the fines approach, shareholders get wiped, creditors impaired, but the company's operations can keep going under new ownership.
I agree, and also feel that wealthy and productive people in society should not be subject to laws like murder. They are, after all, wealthy and productive to society. It would be bad to hold them responsible.
There are reasons why laws must be made and held above opinions of how useful someone or something is deemed to be. Otherwise you create obscene moral hazard and enable societally dangerous behavior.
Or are you saying that the existing shareholders must take a haircut by forced selling, so that some other buyer can purchase these shares at a discount? Thus, it is a form of financial punishment for the shareholders to workaround the limited liability?
1. If a company of 5 employees engaged in behavior resulting in lawsuits causing it to go bankrupt, should that company not go bankrupt to save those 5 jobs?
2. If a company of 500 employees engaged in behavior resulting in lawsuits causing it to go bankrupt, should that company not go bankrupt to save those 500 jobs?
3. If a company of 141,000 employees engaged in behavior resulting in lawsuits causing it to go bankrupt, should that company not go bankrupt to save those 141,000 jobs?
Really at what point does the size of the company become large enough that you personally feel we should regard it differently because of the number of people working at that company?
Besides 141,000 is maybe 0.1% of the US working population so I assume that many more lose their jobs each month just as normal churn. Is there something worse about people who lose their jobs at the same company than if they are spread out at different companies?
disagree. corporations have no will at all. a corporation is a liability-limiting legal structure, it is merely a social convention that is designed to shield ownership from the liability associated with the actions of their employees.
This should happen more often imho (albeit in a more thoughtful fashion that I have time to address in this HN comment). If you choose to invest in a company that profits from negative externalities and those later catch up with the firm, your cash cow may get confiscated.
Justice in this area is challenging, because so many are incentivized to use the law to rob others.
Are the fines (which directly impair financial performance), reputation damage (indirectly impairs) and operational obstacles (directly and indirectly), not sufficient? The value of the investment falls compared to a world where the bad behavior never took place. Investors will be incentivized to move their investment elsewhere. Everyone is disincentivized from said behavior and others are deterred from investing in ventures that seem likely to repeat that behavior.
What if you meticulously invest in the most pro-social / low-externality businesses, but it turns out management were egregiously comically evil and lied about everything? Should you be “punished” (again, beyond the financial damage to your investment) for the bad luck? Or because you had limited time / information for due diligence?