Question of the day : what is the limited company for in the twenty first century?

Posted on May 3 2020

Common place limited liability for registered companies was a mid nineteenth century British creation. It arose as the railways helped fuel massive commercial expansion.

Those who created it had the concerns of the likes of Adam Smith ringing in their ears. They know that limited liability had moral hazard deeply and implicitly buried within it. If the right to not pay debts was granted to one group in society that was at cost to another. The obsession of early Companies Acts, and almost all accounting, was the protection of creditors from that abuse, with a secondary concern being the abuse of shareholders by an unrelated management.

Today if limited liability companies did not exist and someone thought them up I have no doubt they would not be allowed. They are very clearly organised arrangements that facilitate the abuse of the human rights of others.

And the abuse has expanded. Companies are used to abuse tax, markets, the law, democracy and to subvert the delivery of justice, amongst other abuses that they, the anonymity that they provide and lack of accountability that they facilitate enable.

They have also fuelled inequality. The low taxes that they pay and the ease with which they allow the concentration of control over the assets of others has clearly permitted the accumulation of wealth by a few. We see the evidence every day.

And yet it can still be argued that in some cases the original purpose of the company - which was the aggregation of capital for a worthwhile cause - still makes sense. But it contrasts heavily with the fact that the vast majority of companies have almost no capital at all now.

So what is the limited company for in the twenty first century? And do we need to rethink it from scratch?

That's the question of the day.

Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:

You can subscribe to this blog's daily email here.

And if you would like to support this blog you can, here:

18

18 Responses

  1. Alain Deckers says:
    May 3 2020 at 9:21 am

    How does limited liability per se provide anonymity? You could perfectly well have ltd liability combined with a public register of beneficial owners.

  2. Vinnie says:
    May 3 2020 at 9:52 am

    Hi Richard.

    Website technical question, not related to this thread.

    After the revamp, I don’t seem to be getting email notifications of other comments made on threads I have also commented on.

    This used to be really useful for following the debates.

    I can’t see a box to tick like before.

    Am I missing something?

  3. Matt B says:
    May 3 2020 at 10:44 am

    the original concept of a forming a company was to perform a specific task and on completion the company was wound up and ceased to exist,

    the genie got out of the bottle when companies took on a life of their own and became immortal, they were able to grow endlessly in a finite environment, break out of the confines of their country of origin and begin sprawling across the entire planet,

    I’ve noticed within the mindset of a ‘company man’ a greater allegiance to the company than to their country of birth,

    initially they were created as a tool to serve a purpose, now their only purpose is to perpetuate themselves whilst endlessly growing and smothering any competition encountered,

    I need to find a decent book on the history of the East India Company,
    it seems to have grown to such as size, with it’s own private standing army, armed merchant fleet and control and governance of outlying regions that it posed a threat the the British Crown itself,

    are we currently allowing a 21st century East India Company situation to arise?

  4. Fran Howells says:
    May 3 2020 at 11:02 am

    Hiya, Would welcome your opinion on LLPs. company grown & hanging in there now, Q often arises whether’d be better off as Ltd, but flexibility of partnership has sometimes helped.

    • Richard Murphy says:
      May 3 2020 at 12:33 pm

      The LLP model can be abused, most especially by those outside the UK (I would simply not let them use it and declared their partnerships unlimited and not allowed to trade in the UK. or at least make the UK partners liable for tax at basic rate on their income) but that said I find the

  5. Pilgrim Slight Return says:
    May 3 2020 at 11:06 am

    I totally agree with this – most business just seems dominated by debt – hence the inability it seems to weather a virus or why some think it OK to claim 80% furlough money and then ask their staff to work from home! But the PLC bollocks has to go – it is just a statue of limitation for liability and a green light for bad behaviour.

    I think for this change, there needs to be a contextual change, with longer lock in periods for investor returns for a start – I would like to see the end of day trading in stocks and shares and re-orientate the stock market toward longer return periods that enable companies to concentrate on quality, community, environment, people issues – stuff like that – instead of investor returns and paying down debt. I also think (again) that pension investment needs to be looked at too – protecting pension funds must not be a cost to those in work and to the planet.

    Really, our companies should be called ‘public incorporated companies’ because their actions, benefits, dis-benefits will be publicly recognised and accountable to that public where ever they operate or sell (which is everywhere). These companies exist here, shoulder to shoulder with us – current law turns them into an abstraction.

    I also think companies should get more protection from hostile take overs and asset strippers – this will curb the desire of some shareholders to pro-actively seek such take overs in order to get a cash bonanza and enrich themselves. Also, can we stop share buy backs as well? What a waste of capital, when R&D is so low.

    It is the social benefit – something we have come to realise in the lockdown – that is of importance now.

    Too much of business is sub servient to Finance and although I am no expert, this needs going through with a fine tooth comb – the banks are meant to help – not to skin companies alive which is what seems to happen today. Everyone seems to work for banks these days – it’s got to stop.

    Also, after the ‘fuck business’ rhetoric of this bunch of reprobates in power, there needs to be a new relationship between the British state and business based on mutual benefit – and I mean ‘mutual benefit’.

  6. Paul J says:
    May 3 2020 at 11:31 am

    Hi Richard,
    I have a slightly “off blog” question, if you don’t mind considering it.
    Back in the 90s, & thereafter, property values went berserk. If we had had an MMT believing Chancellor at the time, how would you have advised him/her to contain this incredible property inflation?
    Yours. Paul J

  7. CLIVE PARRY says:
    May 3 2020 at 1:03 pm

    Your piece articulates the issues well.
    I suspect the benefits of the limited liability company (which have powered great advances over the last 200 years or so) are difficult to replicate. Besides, ‘we are where we are’ – ie. lots of companies exist.
    So, the line of attack must be to prevent abuse. You, Richard, have contributed a huge amount of work on this and I feel that the tools to restrain abuse do exist – well, that is what I take away from a lot of your blog posts. What is lacking is the political will to make change.
    So, it is all about “education, education, education”. Only when the public understand that we are being abused will we elevate change up the list of priorities. 2008 was a chance but we failed; we now have another chance – we must seize it.
    Surely, this last few weeks has demonstrated the companies rely on the state, civil society etc.. Whenever a businessman (and it usually is a man) claims to be ‘self-made’ I always ask “How would you have created your business if you lived in (say) Iraq?”. Perhaps in future I can delete “Iraq” and insert “the time of COVID”.