Episode 100
100 Entrepreneurship Part 16: Limited Liability Is Not A Magic Shield
March 20, 201315m 49s
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Show Notes
This episode is about the concept of limited liability and it's role in entrepreneurship.
- The purpose of the limited liability principle is not to protect the entrepreneur as director or manager of a business, it is for the protection of investors.
- There is a big difference between this principle and how the actual law of limited liability works in practice. The law is messy and confusing, with strange concepts such as "corporate personhood" granted by the State.
- I argue that the principle of limited liability for investors could be implemented through contracts and that the whole messy legal implementation that we currently have is unnecessary to achieve investor protection.
- I argue that it makes sense for entrepreneurs to use contractual limits of liability wherever possible and to use insurance whenever you need to reduce risk in that way.
- The reality for small business entrepreneurs is that you will not be able to hide behind a shield of limited liability, for example you will be expected to personally underwrite loans.