It’s just playing by the rules as stated, and we have decided that limiting the liability of corporations is desired.
If you start a business, banks loan a lot to that business, and then the business goes under, you don’t lose your house. That’s the way it’s supposed to work, and the intention is to help small business owners not lose their shirts if things go sideways.
But it also ends up benefiting wealthy people because they can use these legal entities to shelter funds. A common real estate strategy is to have a corporation own your properties, leverage them like crazy, then if the market drops and you’re underwater, bankrupt the company. You’ll lose the properties, sure, but you’ll also lose the debt, so you can end up net-positive.
I think we absolutely need to reform how corporations work and remove liability as the value of the company increases. But in most cases, these wealthy people are just playing by the rules that have been agreed upon. IMO, the solution here is generally fewer rules to let things like fraud laws work, not to create more and more exceptions (because who has the resources to find loopholes? The uber-rich).
It’s just playing by the rules as stated, and we have decided that limiting the liability of corporations is desired.
If you start a business, banks loan a lot to that business, and then the business goes under, you don’t lose your house. That’s the way it’s supposed to work, and the intention is to help small business owners not lose their shirts if things go sideways.
But it also ends up benefiting wealthy people because they can use these legal entities to shelter funds. A common real estate strategy is to have a corporation own your properties, leverage them like crazy, then if the market drops and you’re underwater, bankrupt the company. You’ll lose the properties, sure, but you’ll also lose the debt, so you can end up net-positive.
I think we absolutely need to reform how corporations work and remove liability as the value of the company increases. But in most cases, these wealthy people are just playing by the rules that have been agreed upon. IMO, the solution here is generally fewer rules to let things like fraud laws work, not to create more and more exceptions (because who has the resources to find loopholes? The uber-rich).