Tuesday, December 23, 2008

Concerning corporations...

Concerning corporations...

If a corporation, having the legal capacity of a natural person, is itself owned by just one (natural) person, do you think it is fair that the owner cannot be made personally liable for the company's debts?

It appears fair according to the debates surrounding incorporation since the middle of the 19th century. However it really depends upon which side you favour concerning what you may believe a company should be according to Micklethwait and Wooldridge in, "The Company: A Short History of a Revolutionary Idea."

For instance if you lean towards the stakeholder image then a single person owned corporation would not fulfill the interests of a wide number of people either shareholders, the public or social groups at large. Thus you might be tagged a bleeding heart liberal.

If you hold the shareholder ideal as many of my instructors have in the past then the concept of a single shareholder looking out for his or her own best interests with the protection of limited liability should be the purvue of every self-respecting individual in the world's democratic capitalist countries today. Especially when it comes to profits. Is it actually legal? What about married couples? Why is not the institution of marriage carte blanche to limited liability incorporation?

Is it fair that the corporate tax rate applies?

If it is a legit business it should be fair. However if our single natural person is Ebenezer Scrooge then it would not be fair as there is no trickle down effect from his self-interest prior to his being reborn upon Christmas Day. No social groups benefited from his wealth prior to that time.

Why does this form exist?

This form of business exists for many reasons. Incorporation has proven according to economists as the best historical support for massive infrastructural developments and growth as well as securing the risks of underwriting banking systems which rely upon paper currency units rather than mercantilism and laws of incorporation rather than plain good behaviour.

What are a director's non-financial obligations to the company?

We should expect a general interest to the company's well being as in a director should not engage in any business activities which will harm the interest of the company.

What are a director's liabilities?

In all ways a director must seek to navigate costly liabilities such as insolvency by: employing competent auditors, book keepers and accountants (what wrecked Arthur Andersen), fully disclosing the nature and state of corporate debts to creditors ( a lot of US banks roiling in a pot of boiling lava over this), ensuring dividends and yields are not transferred to shareholders from creditors (a ponzi scam), avoiding breech of trust (in a word Madoff), employing due diligence (Greenspan's curse), securing honest accounts of corporate activities (the subprime fiasco with FBI rummaging various offices at Bear Stearns), protecting the environment ( the Bohpal disaster), refusing to employ illegal immigrants (probably hard to do in California), and not soliciting contracts for imports and exports of prohibited list products (Gerald Bull).

Where does one look this up or find out about it?

One may retain consultancy with lawyers or engage the legal systems and documents themselves be they federal, provincial or municipal. Legal documents for consultation include: the Constitution Act, the Charter of Rights and Freedoms, the Income Tax Act, the Canadian Criminal Code, Sales of Goods Acts, International Sale of Goods Convention, Personal Property Security Act, etc.

The Department of Justice Canada engages "Corporations Canada - Guide to Federal Incorporation."

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