The unfairness isn't in what happens after they do something wrong, it's in how they structure their operations to begin with.
The point of limited liability is so that grandpa can invest in an index fund even if he doesn't understand the inner workings of consumer products manufacturing without having to worry that one of the 500 companies in the index will hire a bad manager and have it wipe out not just that investment but his entire retirement account and his house and every other asset.
The problem comes when corporations use the same mechanism to isolate their subsidiaries. Foo Corp is making phones that burn down your house and providing financing to buy them with and cloud services to use them with and software to run on them, but these are each different subsidiaries. Then Foo Electronics files for bankruptcy while its shareholders get to keep all the profits it made from selling the other services instead of making the victims whole.
The solution should be that limited liability is for natural persons, not corporations. If a corporation screws up you can go after the parent. Which makes sense, because the original rationale for limited liability doesn't apply there. We don't expect a business to be a generic investment fund -- if they're buying something it's because it complements their existing products and services, and they understand its operations. If they were just buying it as an independent investment then they could just as well return the money to shareholders to invest in that themselves.
And if that also makes it less advantageous for corporations to consolidate into huge conglomerates, good.
J&J is liable for the full liabilities of the new child company.
The child exists to make sure a pool of at least its current assets exists to split between all claimants. If they’re found to be liable for more than that, then J&J will be liable for it and, if they can’t service that liability, they will have to declare bankruptancy.
This doesn’t work for a particularly useful type of limited liability company: index funds (and mutual funds in general).
Today’s grandpa might be living off the retirement income from his S&P fund investments which should (IMO) have the same level of limited liability to him as grandpa would have if he invested in a tiny slice of each of 500 different companies directly.
> We don't expect a business to be a generic investment fund
Well sure, but those don't have to be a C Corp or an LLC. They could be something else which is restricted to being an investment fund and which isn't allowed to engage in ordinary business activity or own more than e.g. 10% of any given ordinary business.
The point of limited liability is so that grandpa can invest in an index fund even if he doesn't understand the inner workings of consumer products manufacturing without having to worry that one of the 500 companies in the index will hire a bad manager and have it wipe out not just that investment but his entire retirement account and his house and every other asset.
The problem comes when corporations use the same mechanism to isolate their subsidiaries. Foo Corp is making phones that burn down your house and providing financing to buy them with and cloud services to use them with and software to run on them, but these are each different subsidiaries. Then Foo Electronics files for bankruptcy while its shareholders get to keep all the profits it made from selling the other services instead of making the victims whole.
The solution should be that limited liability is for natural persons, not corporations. If a corporation screws up you can go after the parent. Which makes sense, because the original rationale for limited liability doesn't apply there. We don't expect a business to be a generic investment fund -- if they're buying something it's because it complements their existing products and services, and they understand its operations. If they were just buying it as an independent investment then they could just as well return the money to shareholders to invest in that themselves.
And if that also makes it less advantageous for corporations to consolidate into huge conglomerates, good.