A corporation is a legal construct with an identity separate and apart from its

Question

A corporation is a legal construct with an identity separate and apart from its owner(s). The primary legal advantage to converting one’s business from an unincorporated enterprise to the corporate form is the ability to avoid personal liability for the business’s financial obligations. Since the corporation is distinguishable from its owner, the owner’s personal assets cannot be seized to satisfy business indebtedness. These facts effectively mean that an owner can “crash and burn” a corporation financially, bankrupt the business, and walk away from the “flaming wreckage” of the corporation without personal obligation for business debts. Is it ethical for an owner to use the corporate entity to avoid personal obligation for business debts? Why or why not?

Explanation / Answer

Of course it is not ethical to do so for any businessman, harming his/ her own corporation. Many great businessmen try to benefit the company, as much as they benefit themselves.

But there have been many such cases, where the owner had brought the company to debts, by taking much loans from nationalised and state banks, enjoyed the subsidy advantages, and then in case of mishaps, they leave the company management and employees to rot down in debts and lay off.

Recent example of this is Vijay Mallya, who owned Kingfisher Airlines, Beer and United Breweries group companies. He made Kingfisher Airlines bankrupt by his unethical behaviour and unprofessionalism. Many employees had to suffer, he owned banks a huge debt, which is still is unpaid. It should have been the obligation of Mallya to save his company, but he didn’t, instead he flew and ran away out of India.

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