Limited Liability
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Limited Liability

A Legal and Economic Analysis

Stephen M. Bainbridge and M. Todd Henderson

The modern corporation has become central to our society. The key feature of the corporation that makes it such an attractive form of human collaboration is its limited liability. This book explores how, by allowing those who form the corporation to limit their downside risk and personal liability to only the amount they invest, there is the opportunity for more risks taken at a lower cost.
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Chapter 9: Limited liability in comparative perspective

Stephen M. Bainbridge and M. Todd Henderson


In this Chapter, we briefly look at the doctrine of veil piercing in several leading industrial nations. We observe limited liability everywhere in the developed world, from Canada to China. And, as we document, where limited liability goes, so too goes the doctrine of piercing the corporate veil. All the countries we survey permit courts to disregard the separate legal entity of corporations in a limited number of circumstances. Next, we briefly survey the types of limited-liability firms and doctrines for veil piercing in the United Kingdom, Canada, Australia, France, Germany, Japan, and China. We conclude that although the rules vary widely by name, doctrinal approach, and process, at the end of the day, most end up looking quite like their American equivalents. Courts rarely pierce, and when they do, it is mostly in an unprincipled way. Moreover, as in America, piercing is generally not done with an eye on creating the optimal incentives, but rather courts seem to be trying to achieve fairness or justice in ad hoc way in a particular case. The proxies for abuse of the corporate form that foreign courts use are similar to those used in the U.S.: disrespect for corporate formalities, unity of decision making, commingling of funds, and the like.

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