The problem of limited liability of shareholders

Abstract

The development of corporate regimes shows a permanent tendency to extend the benefits of the limited liability of the shareholders. Currently, this limited liability is granted on the basis of a mere formal declaration, with practically no material requirement with respect to the constitution of the companies that allow access to such benefits.

This extension has been driven by claims regarding the advantages it provides in terms of investment incentives and better business organization. However, equal emphasis has not been given to the costs and risks involved in terms of the configuration of business structures, with an uneconomic tendency to indebtedness and a preference for high-risk activities.

This study analyzes the benefits and costs implicit in the extension of the limited liability of shareholders, and shows how the economically unfounded extension of this liability regime has been partially neutralized by a heterogeneous set of legal instruments that operate in the opposite direction, giving rise to a complex, confusing system that is applied with uncertainty.