Going back to school is an interesting experience. Of course, most of us do it to expand or update our job skills. Hell, in this country, education is presented almost primarily in terms of getting “job skills”. One of the great things about it, if you pay attention, is that you may learn tidbits that broaden your understanding of our world. In fact, one of the reasons that the political discourse is so meager in this country is that so few Americans have broad educations, or treat a broad education as a good in-and-of itself.
So this week, a couple of interesting little facts came into view, thanks to a Corporate Practice paralegal class. Two of the most popular ways of organizing business enterprises over the last couple decades are the Limited Liability Partnership (LLP – created first in Texas in 1991 to protect professionals from lawsuits) and the Limited Liability Company (LLC – created first in Wyoming in 1977 to provide the liability protections of corporate structures without the “double taxation” that the investor class loves to whine about). The important words, of course, are “limited liability”. So what does that mean?
Limited liability is a way to protect a person’s individual assets from attack in court due to some damage done by a business that a person invests in. Liability is limited to one’s investment in the enterprise, in much the same way that a shareholder is on the hook only for their investment in shares in the company. LLP’s and LLC’s protect a person’s (or any other legal entity’s) other assets, income and belongings from lawsuits brought by people who may have been harmed by the actions of the LLC or a party within the LLP. Those who argue for these structures argue that investors wouldn’t help grow new businesses without such protections.
These are old arguments, the same ones that were made in the past over the establishment of corporations and business trusts. One of the most troubling things about corporations is that they have so many of the advantages of being legal persons, yet few of the obligations that actual flesh-and-blood people have in their daily activities. In fact, this expansion of “limited liability” for investors has dovetailed a political expansion of the personal liabilities for the vast majority of average people. The average worker can’t protect himself from credit liabilities any more, thanks to the Bankruptcy Act, let alone from debts due to job loss or hospital bills. While investors flock to new legal armor to shield themselves from lawsuits, more and more people at the lower end of the economic spectrum find themselves more and more exposed. Years of workers and consumers and citizens demanding that corporations be exposed to civil litigation when they cause damage are now being undone by these new legal entities. Basically, if you already have, there are more ways to make sure you KEEP. If you don’t, if you’re hanging on, well …
After all, we all know in Twenty-First Century America that virtue is reflected in what you have. If you are bobbing in the economic seas, trying desperately to keep your and your family’s head above water, then you’re obviously not doing something right. You most likely deserve your fate, while the vituous investor needs to be protected from harm, so that he can spread his “virtue” far and wide, in new business ventures.
This leads to a problem in this culture of cheating and lying. In a civil culture like ours, a culture built out of multiple religions, multiple ethnicities, multiple cultures, there is only the civil sphere that we can rely upon for some shared moral structure. Morality, one can easily argue, rests upon a set of rules and a set of consequences when one fails to follow those rules. Yet what is there to say of an investor class that is increasingly walled off from those consequences? Add to that the natural immunity that comes from wealth, in a court system that is weighted toward those who can afford the best lawyers, and a culture of impunity spreads and results in greater and greater inequities.
Those who HAVE expect police protection, while the poor increasingly look at the police as a distant force at best, or an occupying force. It is the poor kid who will pay for the dime bag with jail time, while the wealthy kid, child of an investor, who will get the second chance. This is an old story, yet these new forms of organization reflect a new resurgence of an expectation of privilege on the part of those who have the most.
It isn’t a coincidence that these new legal strategies have risen out of the political cultures of Texas and Wyoming, the political homes of the two men who now govern with an overweening sense of impunity and beligerance. What matters to them is TAKING, while the risk of LOSING is minimized. Deference from the police, from the government, from the electorate, is EXPECTED by this new investor class. A shield from consequence breeds a sense of impunity, an impunity that is more the place of a royal class, the kind of people we once fought a Revolution to escape. THEY can demand that the police come to interview THEM at a time of their choosing, while the rest of us are fair game for sneak-and-peek searches, wiretapping, bag searches and increasing encroachments of both government and corporate surveilance.
It is interesting what you learn, as you go about your education. It’s interesting the various things that offer food-for-thought, in one’s pursuit of expanding job skills and new opportunities. This question of liability is one deserving of debate, of legal challenge and perhaps fresh legislation to return some balance to the current social climate in this country.
Morality GROWS from liability, whether you’re facing eternal damnation or civil tort. This growing trend to protect those with the most from liability is dangerous, while more and more workers and poor have less and less recourse.
Common sense says there will always be those who cheat and lie in order to get as much for themselves as they possibly can. Common sense says that if you give people ways to do this, while insulating them from any potential consequences of exploitive actions, they will gladly use them to the fullest.
Add to this societal values that have shifted from the development of character, and principles and a focus on the common good, toward valuing profits and acquistion as the sign of a sucessful American, and it could go no other way than it has, with a corporate owned government, and a society of haves and have nots.
Money is power and both are tremendously and progresesively addicting. Just like I used to go to any lengths to insure myself of a solid supply of booze, up to and including letting my kids go without things they needed, those addicted to power and wealth will and are doing the exact same thing.
Just like NO one could MAKE me see what I was doing, or stop what I was doing, neither will we make any of these kinds of people see or stop anything that is working so well for them right now. (and to hell with anyone else)
The ONLY reason I am here writing, and almost 25 years sober, is because the consequences of my addiction piled up till I was on the razor edge of death.
Consequences. Terrible consequences, paid mostly by my children for far too long. Just as the have-nots are paying most of them now, for the actions of the haves.
Another great diary, MM.
Of course, the process of limiting one’s liability is nothing new. It began long ago when the corporate form first arose. Shares in nineteenth century corporations were often held amongst a few individuals. These days, corporate ownership is often so widely dispersed that liability would be much more difficult to assign. These new business types mimic the old corporate form in certain ways but on a far smaller scale. But you are right, people seek to avoid the results of their actions.
There has been centuries of case law regarding limitations on Corporate Liability, PLUS the entire question of taxation. It’s been a fitful and incomplete struggle, but gains were made in holding people accountable for the wrongs done by companies.
There are cases to be made for the need for these structures. However, they are also ripe for abuse. There is already a powerful incentive in the current business climate to press the boundaries of ethical behavior, and the erosion of standards amongst some of the lawyers, accountants and other professionals in the search for MAXIMIZED profit creates a powerful incentive to circumvent ethical boundaries, as they can hide personal assets behind these legal walls.
An average person can’t play these games. Debt gets piled up to obtain an education. Proper clothing, tools, STUFF, must be acquired to get that interview, get that job, move up … and if one starts at the bottom the only way to do these things is to obtain more and more credit. An obligation that is increasingly inescapable. This creates a very uneven playing field socially, economically and legally. It also creates a system where cheating and hiding assets is contagious, as one trying to better his life and his family’s lives learns and mimics this behavior in the investor class to which he aspires.
Most disturbing to me is the way those with the most insist on higher and higher accountability from those with the least, while they secure less and less accountability for themselves. It’s as though they, looking at their actions and those of their peer group, see questionable behavior and thus try to protect themselves from those down the economic stream (we’re all cheating, so of course THEY must be cheating as well). This a a recipe for societal breakdown (hey, look outside!).
another spot-on comment.
It’s so sad.
And how many people in this country that, up until recently (under direct influence of the US system), there has been NO TUITION at universities in other industrialized countries: you don’t have to go into debt for life just to get an education.
I suppose the thinking in these countries is that to enter into professional life with a mountain of debt can’t exactly be seen as a good start.
AMEN!
I can personally attest to this. My own lack of higher education is what kept me silent in forums like this for many many years.(not because I didn’t see the value in a higher education, but because my energies were tied up meeting survival needs and raising my kids and By the time they wer egrown, it was priced out of my reach.) It’s only with more years that I have come to realize that a highter education is really not the “only” way to become educated; life can do a pretty good job of that all my itself.
themselves do a much better job than schools do.
It is individual curiosity and desire to learn that make the difference between an educated person and a person who has gotten his or her “ticket punched.”
All education is ultimately self education, whatever the setting. Social supports that encourage intellectual investigation, physical exploration and emotional experience along with free access to the broadest possible range of information and learning tools is quite another thing.
That is what they are: resources. A teacher can make those available, point a person in the right direction, answer questions, share her knowledge.
But a student who is there merely to get that ticket punch for a particular job is probably not going to take advantage of much of that, he will “learn” the material for exams, complete assignments, and move on to the next window.
The students that make the teacher’s life worthwhile is the one who does educate himself, and who has questions because he did go in the direction pointed, and from there branched off and did some self education, and thus has a question 🙂
Yes, we have to be very careful weighing and balancing cause and condition in respect to effect.
For instance, I was feeling very feminine and attractive for several months until I discovered that my co-worker was NOT that happy to see me, but was, in fact, suffering from a hernia.
Believe me, I’m no fan of “higher education” as it exists today (remember, this is the person who for years maintained that the PhD was best described as a “Preparation H Degree”–best guarantee for shrinking your intellectual hemorhhoids!). In consideration of now 25 plus years of dumbing down America, of discouraging interaction with the rest of the world, of insular education (no mandatory foreign language instruction in schools, etc.), my advice to anyone who is sincerely in search of a “broad education”: leave the country, for however long it takes, go see how “education” (and a few other things) works in the rest of the world.
But don’t be surprised if you come back to this country with a great sense of tragedy at how hopelessly uninformed and “unsophisticated” most of your fellow Americans are by comparison to the rest of the world.
(Note: lest there be any misunderstanding, when I use the term “sophisticated” I am not making reference to knowledge of say Goethe or Sartre; Ductape once made a statement to the effect that the worldview of your “average Arab” is probably more sophisticated than that of your “average American”, and that reflects my own experience of the “average village dweller” in W. Africa as well: I know a lot of people there who, by “our” standards are actually “illiterate” (i.e. cannot read or write even in their native language), but whose KNOWLEDGE of the world around them and whose understanding of the world, whose worldview, is so much more “sophisticated” than anything I have seen in this country, except perhaps on Indian Reservations or in some other “alternative communities.”
The point about education today being reduced to the acquisition of “job skills” rather than as education for its own sake is a major one: it is precisely this “framing” of the thing in strictly “economic” terms that squelches curiosity and the desire to learn.
Keep in mind, as you are forming your LLC for the sole purpose of wreaking havoc on the world and avoiding all personal liability, that the failure to adequately capitalize your new entity and the absence of sufficient assets in your new entity will be a primary reason that a court would choose to ignore the form of your business and hold you personally liable for damages caused by your business.
Even people without much capital can avoid this risk by simply making sure their new business is adequately insured against risk.
Companies like General Motors don’t have to worry about this, since they clearly have assets and insurance.
But for individuals who would like to start a new business and employ some people in their community but who also want to protect their families’ future in the event that their business incurs a large liability, these types of entities plus adequate insurance are the way to go.
Just as it is unwise to lump people into stereotyped categories, it is also unwise to lump all corporate/LLC type entities into one category.
oh, yes, absolutely. There are of course legitimate reasons for corporate structures as well as these legal arrangements.
My point is the cultural and political climates that produced them. Increasingly these structures are used to avoid responsibility. Do I think that a majority are pursued for that reason? I don’t know, and there is no real way to know. However, I think there is a sort of “force” applied on honest people toward cheating and avoiding responsiblity themselves, in order to avoid being “suckers” or to try to compete in an environment that rewards dishonest behavior. Believe me, if I was starting a small business or working as a freelancer, as soon as I could afford it I would set up some kind of structure.
This is a debate we need to have in this country. Businesses, however they are structured, do not operate in a vacuum. You mention responsible people who set up something basic to protect themselves, people who provide for adequate insurance in case of damage caused to someone by the business. There are many that aren’t, and layers upon layers of legal onions to unpeel for people seeking damages, people who often themselves don’t have access to the legal system due to money limitations. It creates an uneven playing field, and while ethical people will pursue these strategies in an aboveboard fashion, I would argue that there are many who do not.
IIRC, you’re an attorney, and I’m sure you know a lot more than me about the legalities of these questions. What I’m trying to raise, in a somewhat clumsy fashion, is a philosophical question about them: where does accountability end, where do people seek civil recompense, and is the playing field being tilted so badly toward one economic class that it increases inequities?
What is often overlooked is that it is <u>state governments</u> that grant charters of limited liability, whether in corporate or LLP/LLC form.
Given the fact that states grant this privilege in order to “increase commerce”, states should also start putting some restraints on what these legal entities can do. Which gets to the State of Delaware problem. Until around 20 years ago, most major corporations changed their incorporation to the state of Delaware because Delaware’s law placed few restraints on how corporate management and boards could act. Now, the laws seem to be closer to uniform as states compete for the fewest restrictions.
Why should states not get something in exchange for their extension of limited liability?