Rational Association and Corporate Responsibility

It is a widely held view that limited liability, where the personal assets of shareholders in a corporation are insulated from any claims made by creditors against the corporation, is a kind of special ‘concession’ made to these investors. Apparently, the default position against which this concession operates is that, more normally, these investors, as owners, would be personally responsible for the conduct that they effect through the corporate form.1 However, either for what some might cynically think are political reasons (for example, large and powerful investors have managed to lobby for favorable legislation exempting them from personal responsibility), or for what others would argue are good economic reasons (for example, it would be difficult to amass large amounts of capital and have an active market for shares without limited liability), virtually all western economies have adopted a rule limiting the personal liability of investors in corporations. Any thought that liability should cease at the boundary of the corporation, because it is the corporation that has acted, and not the investors, plays no serious role in these arguments.