It is the aim of this paper to analyze the importance of the existence of limited liability companies in the 21st century, as a means of fostering entrepreneurial spirit, and to argue that while the above aim is regarded as essential in the market economy, there is invariably a need for a clear and precise framework through which the principle should apply. The potential abuse of the limited liability principle requires a careful consideration when deciding about the appropriate level of regulation.
The guiding principle of competitiveness of UK companies and the emphasis on the construction of a legal system that has an advantageous framework of company law and will allure businesses to it, as evidenced in the Company Law Review: Final Report , needs to be balanced with the guarantee that sensible prophylactic measures are taken by the legislator to avoid misuse of the principle. The need to attract more businesses does not justify an extremely lax application of the limited liability principle.
[...] Milman David, “Groups of companies: the path towards discrete regulation” in Milman David (ed.) Regulating enterprise: law and business organisations in the UK, (1999) Oxford Hart. However, Posner holds that the imposition of unlimited liability would result in a growth of information costs since the creditor would have to investigate the economic situation of the other companies in the group (Posner R., n 19 above) Collins Hugh, “Ascription of legal responsibity to groups in complex patterns of economic integration” (1990) 53 MLR 731. [...]
[...] The formal introduction of the twin principles of incorporation and limited liability led to the establishment of companies as the major instrument in economic development and contributed to the evolution of commerce and arguably to world prosperity[9]. III. Why limited liability? The major contribution of limited liability is that it supports the investor to invest its capital into dynamic business without worrying that he will incur further liability. The economic theory of the firm, which explains the company as a nexus of contracts joining inputs to produce outputs[10], has provided a solid base for the appraisal of limited liability. [...]
[...] Law 581 Sections 135,143,159-181 of the Companies Act 1985 The matter is now regulated by the European Union; see Second EC Directive of 13 December 1976 on coordination of safeguards which, for the protection of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 58 of the Treaty, in respect of the formation of public limited liability companies and the maintenance and alteration of their capital with a view to making such safeguards equivalent (77/91 EEC), especially art. [...]
[...] and Bus.L.J Halpern Paul, Trebilcock Michael, Turnbull Stuart, An Economic Analysis of Limited Liability in Corporation Law, (1980) 30 University of Toronto Law Journal Hansmann Henry, Kraakman Reinier, Toward Unlimited Shareholder Liability for Corporate Torts, (1991) 100 Yale Law Journal Hicks Andrew, Director Disqualification: Can it deliver, (2001), Journal of Business Law (Sept) Hicks Andrew, Future Developments in Company Law, (2000) 21 Company Lawyer Hicks Andrew, Millennial Law: Philosophy, Politics, and Economics, (2000) 21 Company Lawyer Hicks Andrew, Corporate Form: Questioning the unsung hero, (1997) Journal of Business Law, Jul Hicks Andrew, Reforming the Law of Private Companies, (1995) 16 Company Lawyer Kahn Freund O., Some reflections on company law reform, (1944) Modern Law Review, April Landers M., unified approach to parent, subsidiary and affiliate questions in bankruptcy” (1967) 43 U. [...]
[...] The indispensable need to protect creditors in the case of limited liability companies restrains significantly the limits of deregulation in this area. A possible new kind of Limited Liability Company would result in encouraging sole traderships and partnerships to incorporate, expanding thus the opportunities for externalization of risk against the interests of creditors[61]. All the same, the EC Directive on single member private company[62], the recently introduced Limited Liability Partnership in UK and the “think small first” approach of the Company Law Review to private company regulation and legislative structure reveal the current dominant trend in company law, which favors the open access to limited liability without taking into account its possible deficiencies. [...]
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