Extended Liability of Shareholders?

Timo H Kaisanlahti

University of Joensuu

jcls Vol 6 Issue 1 (April 2006)

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Abstract

This article re-examines the dogma of limited liability of shareholders in the stock market. Shareholders are efficient risk-bearers due to the diversification of investments. So it is tempting to conclude that they are better suited to bear the costs of accident than tort victims. Within this framework some prominent scholars have proposed that each shareholder of a listed company should have a secondary liability to bear the tort judgements against the company on a pro rata basis without an upper cap. However, I draw attention to the crucial condition for risk bearing based on diversifying the stock portfolio: the maximum liability in each company must be known ex ante.

Keywords

Diversification, Judgement proof, Limited liability, Risk-bearing, Shareholder, Stock market