Open Access. Powered by Scholars. Published by Universities.®
Articles 1 - 1 of 1
Full-Text Articles in Law
An Economic Analysis Of Limited Shareholder Liability In Contractual Claims, Thomas K. Cheng
An Economic Analysis Of Limited Shareholder Liability In Contractual Claims, Thomas K. Cheng
Thomas K. Cheng
This Article evaluates the economic basis for limited liability in contractual claims and proposes the introduction of unlimited liability for such claims against closely held corporations. It argues that the existing justifications for limited liability are unconvincing, and that unlimited liability is an economically more efficient rule for these corporations in light of savings in monitoring costs and more efficient allocation of risks. It rejects the frequently made argument that limited liability is justified in contractual claims because the contractual counterparty had a prior opportunity to negotiate for modifications. This argument demonstrates a fundamental misunderstanding of the nature of the …