Why are we still giving limited liability to almost anyone who asks for it?
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- čas přidán 11. 09. 2024
- We’ve had limited liability companies in their current form for about 170 years now, but no one back then imagined we’d have more than five million of them. So, are we really doing the right thing giving limited liability to anyone who asks for it now, or should we be more circumspect?
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13. Why are we still giving limited liability to almost anyone who asks for it?
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I'm surprised that this name is being mentioned here, I stumbled upon one of her clients testimonies on CNBC news last week...
I keep hearing a lot about Mis. Tracy Britt Cool Consulting O'Reilly, she must be really good
One of the issues with removing limited protections is it means small companies and businesses are suddenly exposed to aggressive legal action by very wealthy individuals and corporations, so I think ensuring legal equity is essential here.
The Devil's dictionary, by Ambrose Bierce, defines a "CORPORATION" as " An ingenious device for obtaining individual profit without individual responsibility." Where as most entries are wittily cynical exaggerations ("BRIDE, n. A woman with a fine prospect of happiness behind her.") this particular definition of limited liability is precisely correct. That's exactly what it is.
Originally it allowed the aristocracy and rich merchants to speculate new ventures without the risk of losing their land and fortunes.
And now it means ordinary people being able to start a small business knowing that while they do risk the full value of their company, they at least can limit it to that.
Agree. And it still does. And you. Without it, your pension fund would be partly responsible for any losses of companies it had invested in.
@@thpark8189Spread the risk and share the loses.
More like offload them.
It's evading accountability , so there's no need to be a great company ,a honest company ,if anything goes wrong cut your losses and run, in my mind just increases crimminality .
LL is NOT for the financial protection of Directors. They have that in any company. It is for the protection of shareholders (largely from directors).
I agree with all this. Limited liability does have a use but it is too easily abused. It is too easy to use it as a vehicle for fraud and for abusing employees' rights. It should be much harder to set up an LLC and legislation is needed to make officers of the company and large shareholders responsible for crimes committed by companies as if they had committed them themselves.
Spot on
Running up debt and then folding happens regularly in the world of small business. Limited liability makes dishonesty profitable
Phoenixism.
Facilitated by HMRC always working two years behind the accounts cycle.
So what? You’re concerned small business but not p3do in charge
If anything, small businesses need limited liability, and the large ones don't.
A small business owner needs to be able to dust himself off and try without being ruined.
He probably will be ruined. A business loan from a bank almost always requires a directors guarantee. Usually his house.
The UK government should apply for limited liability. Then hire private companies to do the work. like Reeves wants. Then don't pay them.
Any OECD government does exactly this - except the limited liability shield the contractor companies from voters, and the government from owning (also literally) anything. No ownership, no liabilities…
That’s how the government doesn’t “pay” the contractors. We do, for decades - through bills and rent, _not_ taxes.
Like social-democracy gone wrong, where the “social” part is for the companies’ owners, split off from independent voters’ influence.
What we call “individual freedom” in popular politics, liberalism in actual policies…
_(I’m very happy for Murphy to take this up, been hammering this existential rusty nail for decades…)_
Hi,
Why do we have limited liability? That's a pretty simple one to answer if I may say so.
I have run 3 businesses and without it I doubt I would have run 1, because I am not stupid. Carrying that amount of potential debt personally would stop any sane person founding a company. Yes we would stop some bad eggs, and get rid of many good ones with them. If, as a director, you commit fraud, reckless trading, preferential trading ... then you can have the veil of incorporation lifted by the judge. Then you don't have limited liability anymore, you are on the hook for all the company debts to some degree. So it's not carte blanche to do whatever you feel like just because you start with limited liability.
Running a company is hard enough, without your suggestion being added to the pile.
Brian.
I tend to agree. Anyone who has tried running a small business will soon realise how difficult it is. You are overwhelmed by the amount of money that goes out. Insurance, business rates, various licences, wages, lease hire, accountants, shrinkage ....its never ending. Not to mention competition and legislation. If the government want to incentivise SME growth they have to give some kind of cushion otherwise people just wouldn't try anything. They should take each case of insolvency on its own merit, and decide who genuinely give it their all and who played the system, and punish accordingly.
Ltd liability is absolutely necessary if you’re an entrepreneur trade amongst other traders is risky and you don’t enter that arena unless you know the risks.
If Limited liability wasn’t available., The court systems would jam immediately.
Predominantly limited liability is revoked as soon as you need a loan from the bank since day request personal liability, regulation
Let's have a level playing field then. With employees and public sector bodies also losing their limited liability.
National clearance hub had a computer glitch in CDS on an import we are seeking direct costs of £5k and consequential losses of £96k for penalties incurred with our customers. In Richards world, where does the liability stop, the data entry clerk, the manager, the software engineer, the government minister who mandated CDS?
The odd thing is when there is a small business, it's almost impossible to borrow from the bank without directors personal liability. However, large companies are welcomed by the banks to borrow millions, and if they go into liquidation, the bank will happily lend the new company millions. Again, it's the old boy network and who you know.
It’s really valuable to me to hear the first principles of what these structures are / meant to accomplish. I have to say I really miss the days then you just started in good faith, worked really really hard, learnt along the way and the possibility of accomplishment was really there. I’m increasingly getting the eerie sense that Ai is soon going to dismantle all of this and no amount of legislation or barely relevant government is going to matter. RIP owning a small business and being part of the ecosystem of community
So what is the key point Richard overlooks this time? (there is always something)
The thing missed is the principle that when you set up a business, it becomes a seperate entity. This business files taxes, this business trades and makes profits.
If you want to remove limited liability then you have to remove this principle. Once you make every director liable for all the debts of the company then anyone with a decent sum in the bank would be too scared to set up a business.
Anyone lending to the company can secure their loan if they want. There is no particular abuse going on which would not go on if the business was a sole trader.
So just another silly half cooked rant really.
The members of Lloyd's Syndicates used (maybe still do) to have 100% liability. This meant if you were an individual you could be bankrupted if the money held by the syndicate was insufficient to cover policy holders losses. This did not stop Llyods becoming hugely successful.
Removing the benefit and making directors/shareholders accountable would probably be a very good thing in the longer run, and some of the "creative" accounting would become defunct. There may also be a knock on effect where parts of the consumer/investor protections and insurances become almost unnecessary. However, I suggest the use of limited liability runs deep, not just in the UK, and those who could make this change probably will not, or won't be allowed.
You understand that would put you pension fund, and any other investments you may have, at risk? And, ultimately, your house. That is what unlimited shareholding is- a share of both profit and loss.
@@Tensquaremetreworkshop Are you thinking people/directors/companies should not be accountable? It's perhaps a scary thought, but also seems more honest. Perhaps insurance would be a better way to protect against personal loses rather than limited liability as that may promote directors to take fewer risky decisions for personal profit and focus more on company health.
@@foxmoongaze Directors and managers should be accountable. And they are- you can argue about if this is sufficient or not, but it is a separate issue. The primary function of the LLC is to protect shareholders from directors/managers/employees. Their liability is limited to their investment. They do not lose their house because e.g. an idiot in the company caused a massive lawsuit. Being an LLC does not protect a director any more than being a director of a non-LLC.
Half of Adam Smith’s writing is about how crazy it is to give limited liability to anyone and everyone.
It's really interesting how we have these frameworks for managing operations, and seeing all the commentary here with the contentions people have, all argued within the limited range of the assumption that the capitalist system itself is part of a natural order. Yet the fundamental drivers of participation, the incentives to extract and accumulate wealth, are incompatible with the sustainability of the ecological systems that are required in the first place to facilitate the conditions conducive to life. So while some people are bothered about “life as we know it” depending on limited liability, the very nature of its purpose is an antagonistic force against “life as we know it”.
I agree, very well explained. This then leads me to the actual law and it’s hypocrisy and one does have to question its legitimacy as a whole.
In fact anything remotely registered with the state gives them the power of control and not yourself as you have resisters with the state under their rules and jurisdiction / law .
You can of course just not register and trade .
However they made that illegal and can use your upper case block capital name to take legal action.
That’s because your parents registered you to the state with a birth certificate giving them control over you .
That’s why the can force a child to go to school or take them away yet you are the parent.
So if I put a hundred quid into a company, I should be liable for the company's entire debt when it goes belly up?
I am all in favour of better regulation of all companies, partnerships and what have you. But not in favour of a list of pre-incorporatioin tests. It would only limit commerce and progress to what bureaucrats can imagine.
So everyone with a pension should be saddled with unlimited liability for the potential actions of every company owned by their pension mutual funds? Your figure of 30% of small companies not paying their Corporation Tax gives the lie to this idea that it’s ‘rich people’ who evade taxes doesn’t it. That 30% would pay their taxes and debts whether or not they were limited companies. Everyone knows what limited liability means, and without it there would be no economy.
This is bizarre and reassuring: I've watched almost ALL of your videos @RichardJMurphy and agree with pretty much everything you've published. I've had the privilege of limited liability too. And been exposed as a sole trader to the aggressive ravages of Rentier pubcos. Limited liability should be MUCH harder to use than it is. It's very widely abused. Pre pack administration is REALLY common in the pub sector.
UK Government could maintain existing limited liability companies policies and processes and use Bank of England to create money at no extra cost to Government finances to compensate losses to suppliers, contractors, employees and creditors including HMRC.
If you are questioning Limited Liability Richard J murphy... We should also look at the Limited Liability that is given to married couples and their offspring!!! I.E When the children become exempt from all responsibility of the parents due to reaching the age of 18!!!! then asking their beloved kids to leave the home at 18 based on the assumption they are all Employed and on their way to afford Ludacris house/flat prices with no protection at all from homelessness from the state or their parents... The assumption that parents will fill the void is a total nonsense.... Parents should have full liability until such time their offspring are able to support their living expenses, housing and future.. If not, they stay at home with their parents until they can...... not defined by an age of majority 18 and the parents get let off the hook by the state!...
Are single person LLCs in the UK not passthrough entities for tax purposes?
Very interesting idea and very true.
You mentioned that a company may not have paid Corporation Tax, VAT, and PAYE. Am I right in saying that if an employees PAYE has not been paid to HMRC, depite the money being deducted by the employer, then the employee is still liable to pay it?
Limited liability is a right - it's in the Companies Act 1985.
I don't think directors should be immune from the law in terms of paying tax. Limited Liability is crucial in regards to creditors though, they should be understanding the risk they take when they lend and costing that in accordingly. It wouldn't be right to expect a private individual to take on the debt burden of a company that failed, the creditors need to factor in that risk and if necessary don't lend.
'The shareholders walk away' (2:38) - with nothing. If companies were not limited liability, all the shareholders would be liable for all debts. Which means if you have invested pension savings, you could be thrown out of your house because one of those investments went belly up. No-one would invest in those circumstances, and modern society would not function. LL is at the heart of Western commerce. Avoid ever being in nett credit to a LL company (or have section 75 credit card protection) and you are safe. 'Probably benefitted' (3:20) - NO! Without this, the world we know could not exist.
Small companies? They almost never get credit on LL - bank loans require Director's guarantees- your house is on the line.
Non LL? You are still at risk. Pay a tradesman before the work, and you might have to kiss goodbye to your cash. Sue? It will be gone. Make bankrupt? You still do not get your money.
Almost all of that is addressed in the video. RM is pointing out LL it is often abused and used inappropriately. Do you dispute that?
@@charliemoore2551 It is NOT addressed. He concedes that LL 'may' have benefited society- when our society is based on it. It is essential to modern finance. Pension funds etc could not exist without LL. When it comes to small companies (the focus of his ire), the risk to the consumer between LL and sole trader is vanishingly small. I have never suffered loss to an LL, but have from a sole trader. The main purpose of LL is to protect 'arms length' investors. Their liability is limited to their investment- their entire worth is not at risk. (It is the opposite of Lloyd's insurers- who got bitten a few years ago). The finance for small companies is invariably a bank loan (the shares are nominal, a few £s) and the bank requires director's guarantees- so not LL. In short, this video is misleading at best.
@@Tensquaremetreworkshop Thanks Charlie Moore. Why is Tensquare making up what I did not say?
@@RichardJMurphy What, exactly, did I 'make up' that you did not say? the 'probably benefited' is a direct quote! I note that you removed my explanation - care to say why?
@@Tensquaremetreworkshop I removed nothing that I know of. I never suggested removing limited liability from all companies. You made that up.
So why are you sheltering behind a LLP? Limited liability is a key policy to bring about economic prosperity.
For actions there should be consequences for capitalism to work as origionally intended. Limited liability is one way to limit the consequences if otherwise they would be justifiably terrible for those concerned. Another is Quantitative easing which meant the banks escaped scott free from being incompetent and corrupt. The consequences were postponed for the next generation to pay the real price. There has to be the right culture for capitalism to work effectively.
"as originally intended" 😂
This is complete BS. Limited liability exists because it has vast economic utility. It encourages people to set up businesses which may or may not succeed (and the majority do not) knowing that if it all goes wrong, as long as they have conducted business in a broadly honest fashion (I am over simplifying) they are only risking the capital they invested.
The "genuine" questions Richard poses are complete nonsense. Just one example is sufficient: if limited liability should not apply to employee liabilities who should pick up the employee liabilities, directors, shareholders, both (and if so in what proportion)? This would be a serious impediment on companies considering expanding - why take on more staff or open a new office in a new location if the downside is you might be personal liable for those staff salaries. As a country we have long recognised this which is why when a company goes insolvent and workers lose their jobs we have the redundancy payment service (from memory a part of the Insolvency Service which is an arm of government) to pick up some of the liabilities. Trade creditors of course have recourse to trade insurance should they wish to insure against potential losses.
As Richard is a so called expert on the tax gap he will of course know that non-payment (which is in respect of all taxes) whether by companies of various sizes or individuals is one of the smaller components of the tax gap. But because he is not an expert, or even a self proclaimed expert, on insolvency he may not be aware that failure to pay PAYE, VAT or Corp tax can have serious consequences for Company directors - then can be disqualified usually for 2-5 years from being a director. The reality is that the vast majority of companies go bust not because they have been run as some sort of fraudulent scheme to scam HMRC or other creditors but because the directors made one or more mistakes, they are human mistakes happen. Sometimes the mistakes are obvious and should have been obvious at the time, sometimes they are subtle and only become clear later, months or even years later and sometimes they are overwhelmed by an event(s) that was so unlikely that it was impossible to predict (Covid wiped out a lot of businesses)
I really appreciate this. Running a business is so so difficult and rewarding. You put your whole soul into it and when circumstances beyond your control- like being locked in your house for the best part of a year by the government- happen, it’s beyond painful to watch it all vanish.
There is now more reason than ever to trade as an llc in our litigious age where all seem to know their rights but are not so willing to recognise their responsibilities. You, as an individual, decide with whom you do business. That goes for employees as well as suppliers and buyers of goods and services to a local.
Hi Richard, love your work. HATE the unremovable subtitles with the weird cadence and flashy bits. Extremely distracting. It's very Trumpian. Now I am going to cover them up with another window and watch the rest. I normally just abandon any videos with this type of subtitle but your work is important.
Perhaps! It is not unique you know. For example Germany has the self same thing. G.mbH (Gesellschaft mit beshraenkter Hartung)
You have a phalanx of people on this site who have no idea of business!!!!!
I think a better solution would be to insist that every business is VAT registered. FRS could be adapted to help. This opinion from Richard is (in my opinion) partly elitist and biased towards a form of bougie idealism. Construction of a glass ceiling for those who seek to limit choice with their we know best attitude. Which they don't and never did as impressive as the educational creditentials are. No matter how well meaning their virtue signalling is. Entrepreneurs are more dynamic, pioneering and the life blood of our Society. To punish them for taking risks is to kill off choice and increase personal bankruptcy and who wants that? Not even the EU who pushed for easier limited liability in the first place. No I think Richard just, on behalf of his CA colleagues, just misses screwing ltd co businesses for the audit fees. Which as an ex audit assistant was a charade in itself. No offence just my opinion.
just think of it as insurance by state and society instead of a fat cat private insurance company taking payment for insuring your liabilities... 😄
Tucker Carlson need to put in a call to you.
the moral of the story is. If you don't want to risk losing your money. then don't invest in LLC's. Any time the government gets involved in the economy it turns to shit.
The government has to get involved in the economy in order to establish the rules on which it runs. No government involvement also means no enforcement of property rights, it would just turn into whoever has the biggest gun owns everything.
Libertarians really are funny to watch 😂
Dogma.
Richard, Would you be able to point me in the direction of the evidence you mention please?
@@vinniep01 On what? If it is the unpaid tax it is in HMRC’s tax gap data - just search it
@RichardJMurphy I just wondered what evidence of limited liability abuse existed. I did really mean other than the well known tax issues. I think it's an interesting subject from the abuse of employees to the non payment of creditors.
@@vinniep01 Phoenixing has been common for decades. It still is. I have no current data, but a lot of anecdote
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Presumably you'd like a return to victorian debtors prisons. I notice you only seem to think this should apply to smaller businesses. The biggest sources of business failure are sudden changing circumstances, such as losing a contract, and taxation. The abomination of VAT whereby businesses are forced to handover a huge chunk of their revenue regardless of whether they are profitable is obscene. I presume you and others like you have some influence at the treasury and hmrc who also have a loathing for small businesses...the forthcoming mtd for income taxes is a beaurocrats dream and an administrative nightmare for plumbers and electricians and builders and cafe owners and anyone else who dares take risk and strike out for their own future. ..
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I don't agree at all with Richard on this. Removing the right to limited liability would simply deter many from ever starting a business at all, with disastrous results for the economy. Running a business is hard enough.
He's not suggesting removing it altogether. He's suggesting regulating it. Did you watch the whole video?
@@helenheenan3447he a tyrant fool