Historical Drawbacks of Limited Liability

Abstract

Limited liability is a human invention which has facilitated enormous economic growth around the world, particularly since the time of its general application in advanced countries during the nineteenth century. The individual legal identity of companies, coupled with the limited liability of their owners, has provided protection for investors from the risks associated with their investments. It has thus contributed to increase the sources of capital available to finance projects which might otherwise have been considered unviable. However, the legal protection offered to investors has negative consequences for other participants in economies. Speculation in stock markets often damages society. It is very important to study the drawbacks of limited liability and to suggest modifications to achieve a more stable, less volatile, economic growth in the world. Although this article goes to some lengths to recognise the work of authors who emphasise the positive historical economic contribution of limited lability, its main objective is to provoke a reflection around texts which point out the drawbacks and propose solutions.