The Corporation
From Wikipedia we get the following characteristics of a corporation. With notes from the author of this blog
1. It is a separate legal entity that has privileges and liabilities that are distinct from those of its members. This particular characteristic has made the corporation the single most popular business form in the world because it effectively separates the corporation, as a legal entity, from the people who own it, run it, or trade for it on the stock exchange. You’ll see why that is so attractive as we look at the other aspects of corporations.
2. Stockholders enjoy limited risk and limited liability. The total risk of any stockholder is limited to the original investment. If the corporation goes bankrupt stockholders have no liability for the debt. Stockholders want profits and pressure corporations to perform on a no-matter-what basis. Which brings us to the liability question: even if the corporation is found to have broken the law, cheated, stolen something, contaminated the environment, or caused someone’s death ... the stockholder has no liability. Such liability lies solely with the corporation and extends, theoretically, to the full extent of the corporations ability to pay. In other words the corporation’s liability is limited to the size of its assets.
3. The Board of Directors, Executives, and employees also enjoy limited liability. The BOD follows the directions of the stockholders, executives follow the orders of the BOD, and employees do what they are told (lest they lose their jobs). Literally speaking, if the corporation breaks the law, lies, cheats, steals, and etc … no one gets in trouble … no one goes to jail. The corporation gets a slap on the hand and maybe a fine. Simply put … you cannot put a corporation in jail … the most you can hope for is to put it out of business.
4. Despite not being natural persons, corporations are recognized by law to have rights and responsibilities like natural persons. Corporations can exercise their rights against natural persons, as well as, the state (government). Like natural persons they can be convicted of fraud, manslaughter, and etc. However, unlike natural persons, no one is put in jail. Our only recourse is fines.
5. Corporations are conceptually immortal. Corporations live in a “charter” which means that unless the corporation is dissolved by action of law, it can never die. At one time corporations were limited to the activities stated in their charter but now corporations have few, if any, limitations.
6. Corporations are not considered living entities in the same way humans are. Again, no corporation has ever been put in jail. Corporations typically don’t suffer under seven years of bad credit ratings from the rating agencies … they typically restructure corporate holdings, refinance, or have personnel shake-ups.
7. Corporations can be multi-national. It is simple, and welcomed, for a corporation to be multi-national. But generally speaking the idea behind this maneuver is to avoid laws, taxes, and tariffs. In other words, a multinational corporation uses the confusions of international law to place themselves above government interference, taxes, rules, tariffs, and controls. For example, if one nation is going to apply huge fines for some mis-adventure the corporation had … that corporation simply moves its major assets out of reach to another country and then allows itself to go bankrupt. Then they re-open in the same country under a different name.
8. Corporations themselves have limited liability. As indicated above, and regardless of the circumstances, the liability of any corporation is capped by its net worth. The problem is that most corporations now use “holding companies” to shelter their assets. Since they are completely aware of this … most modern corporations keep their actual asset levels under 10% of their net worth on paper.
9. Corporations have no minimum capitalization requirements. At one time minimum capitalization was required. This is no longer true and that means many corporations actually owe much more than they are worth in hard assets.
10. Corporations can actually own chunks life … in the form of “DNA Sequences”. Does it seem odd to anyone that we would let a non-living “legal entity” like a corporation … actually own life? Does anyone suspect that this could prove to be highly dangerous … or even fatal to life?
11. Corporations concentrate the monetary wealth of many hardworking investors into a single unit under the control on an elite few. As described, the wealth of the many is placed into the hands of an elite few …who have no real liability as to what they do with that money. Should that be of concern?
12. The Golden parachute. Now we get to the best part. Most board members and corporate executives have employment contracts with what is called the “Golden Parachute”. Essentially what it means is that regardless of the performance of the individual, or the performance of the corporation, or even whether the full term of the contract is met … the executive is guaranteed a package of benefits on their exit. It could be company stock, pensions, insurance, annuities, or any number of other long term benefits. But the single proviso for all this is “non-disclosure” … meaning that whatever that executive saw or knew about the corporation is to be kept a secret … even if that knowledge was about something illegal, immoral, or fattening (haha)!
Now I ask you! Do you really think corporations are such a great model for our long term economic welfare? It seems plain that as soon as you eliminate the personal liability issue … it becomes a recipe for disaster and gives human greed a place to hide.