If such a law existed, I think it would also have to have a provision about the shares being destroyed -- not being worth 0.
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 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.
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.
> 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.
it seems as though you are making a semantic claim around the word 'equity' which is fine but you also seem to be simultaneously claiming that people would either make/take loans or operate the business themselves. I almost didn't reply because I don't want to argue but you ought to be informed that this implication I have attributed to you based on your replies is not true [1].
if I've misunderstood the thrust of your replies then I apologize.
> Unlimited companies prove my point. They’re rare. And they’re overwhelmingly levered.
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.
> people owning capital without a liability shield
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.
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.