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Authors

Richard Schulte

Abstract

The purpose of this paper is to analyse the historical and economic rationale of corporate limited liability and to contribute to the debate about its future. Part one of this paper proposes to give a background to the concept of limited liability by looking at its roots in Roman entity law which shows that its original purpose was to protect public property from the creditors of individuals who comprised the public body. The subsequent evolution of the two principles mentioned above is considered together with the exceptions which have evolved through the legislature and the courts.

The most compelling arguments for limited liability are the economic ones. Part two of the paper will consider the economic arguments for and against the three possible liability regimes of corporate limited liability: limited, unlimited and pro rata. This paper concludes that corporate limited liability will continue to exist in its present form because of the economic incentives it accommodates, provided it does not protect those individuals and larger companies who are truly culpable for the losses of others. A section of society will always suffer loss but the overall gain of society outweighs these losses.

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