As I’ve noted elsewhere (see posts appended below), the left-libertarian (and other) critics of corporate limited liability are off the mark. As far as limited liability for contractual obligations and debts, this is a contractual matter. As for limited liability (of shareholders) for torts (committed by employees of the corporation), there is simply no reason for the shareholder to be vicariously liable for acts committed by the employees merely by virtue of owning stock in the company. As Hessen argues:
The proper principle of liability should be that whoever controls a business, regardless of its legal form, should be personally liable for the torts of agents and employees. Thus, in partnerships, vicarious liability would fall upon the general partners only, while in corporations, the officers would be liable.
It should be no surprise that Rothbard was good on this issue as well. In Making Economic Sense, ch. 19, he writes:
None of this means that tort law itself is in no need of reform. The problem is not really quantitative but qualitative: who should be liable for what damages? In particular, we must put an end to the theory of”vicarious liability,” i.e., that people or groups are liable, not because their actions incurred damages, but simply because they happened to be nearby and are conveniently wealthy, i.e., in the apt if inelegant legal phrase, they happily possess “deep pockets.”
Thus, if we bought a product from a retailer and the product is defective, it is the retailer that should be liable and not the manufacturer, since we did not make a contract with the manufacturer (unless he placed an explicit warranty upon the product). It is the retailer’s business to sue the wholesaler, the latter the manufacturer, etc., provided the latter really did break his contract by providing a defective product.
Similarly, if a corporate manager committed a wrong and damaged the person or property of others, there is no reason but “deep pockets” to make the stockholders pay, provided that the latter were innocent and did not order the manager to engage in these tortious actions.
To the extent, then, that cries about an insurance crisis reflect an increased propensity by juries to sock it to “soul-less corporations,” i.e., to the stockholders, then the remedy is to take that right away from them by changing tort law to make liable only those actually committing wrongful acts.
Let liability, in short, be full and complete; but let it rest only upon those at fault, i.e., those actually damaging the persons and property of others.
See also: Legitimizing the Corporation and Other Posts; Defending Corporations: Block and Huebert; Pilon on Corporations: A Discussion with Kevin Carson; Corporations and Limited Liability for Torts; In Defense of the Corporation.