Tag Archives: limited liability

Limited liability – Only for a Limited Few

 

By Kartik Misra

The Limited Liability Act of 1855 allowed British corporations to separate their firm’s financial liabilities from the assets and wealth of their owners. This was expected to encourage entrepreneurship and investment which in turn would generate employment, prosperity and lead to greater innovation. If a limited liability firm goes belly up, it’s investors are not required to liquidate their assets. However, if the firm’s owner is a sole proprietor, as is generally the case with small businesses, then there is unlimited liability and debts have to be repaid at all costs. Today most countries have some form of limited liability clause in their rule books, but only for a select few citizens. This disparity has consequences: wealthy entrepreneurs can take chances risk free, petty entrepreneurs live in danger, and governments are made subject to the will of lenders.

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“Jack and the Giant Joint-Stock”, a cartoon in Town Talk (1858) satirizing the ‘monster’ joint-stock economy that came into being after the Joint Stock Companies Act 1844. (Source: Wikipedia)

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