This discussion board is open for any questions or comments in a new thread, but

Question

This discussion board is open for any questions or comments in a new thread, but please address the following: 1. Should we allow business to be conducted with limited liability entities? This arrangement obviously benefits investors, but does it harm society? If so, how? Many corporate scandals are caused by the separation of ownership from management. Investors own companies, but executives manage them. Investors are said to "vote with their feet", meaning that if an investor doesn't like what a company is doing, she sells her shares and takes her money elsewhere, rather than voting to change the conduct of the business. It is easier to pick up and move on than it is to get involved and organize change within a large company. The fact that publicly traded companies may be owned by hundreds of thousands of small investors with only a few shares of the company each means that most of those investors cannot practically participate in the management of the companies in which they invest. If limited liability was eliminated, investing in this manner would be extremely risky, as your personal assets would be at risk from the liabilities of each company you invested in. How might this change business ownership? What impact would this have on society?

2. Should we ever create "partnerships by estoppel"? Why or why not?

Explanation / Answer

1. We should allow business to be conducted with limited liability entities because investment is very essential for a business to succeed and if we restrict the limited liability entities, the chance for investment also decreases. The investors will not be ready to put their personal properties at risk for their shares in the business. The main advantage of limited liability entities is the higher chances of investment which we cannot forget and hence we should allow business to be conducted with limited liability entities.

Limited liability entities may lead to harm for the society because when the investor liabilities are limited, they may not try to control the business. The main interest of the investors is in making profit rather than taking efforts to improve the quality of the business. As the investors are free from the liabilities they are not worried about the consequences of the strategies or actions taken by the management on the society. If the company is found to be in loss, they have the option to sell their shares and search for another firm to invest. The attitude of the investors may place the management under pressure which may compel them to follow unethical practices to show more profit in front of the investors through actions like compromising on product quality, increasing the price or employee layoff which may harm the society.

If the limited liability is eliminated, the shareholders will be afraid of the liabilities that may affect their personal assets and hence will try to exercise more control over the management. The management activities would be closely monitored and the investors would try to avoid any violations that will make the company legally liable. When the companies act according to rules and regulations, it will benefit the society as the rules and regulations are in place to help the society and the people who live in it.

2.In my opinion we should create partnerships by estoppels which would make all the partners legally binding towards the partnership. All the partners have the responsibility to ensure fair conduct of business and all of them should contribute towards the success. The main reason for defaults and unethical actions are the ignorance of the partners who do not have formal partnership agreement with the firm. They think that they are not liable for the actions as there is no legally binding agreement. Partnership by estoppels would help to avoid such kind of issues as all the partners assume their responsibilities and liabilities equally.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.