Academic journal article Washington and Lee Law Review

Limited Liability and the Real World

Academic journal article Washington and Lee Law Review

Limited Liability and the Real World

Article excerpt

This is not a traditional academic law review article. Rather, this Article describes a personal debate that the two co-authors had through electronic mail in late 1995 and early 1996. Initially, the subject of this debate was the appropriate role of limited liability in the jungle of newly created unincorporated business forms that have appeared in the 1990s, but the debate rapidly expanded into a discussion of contrasting views of the rationality of markets in American society. Because these exchanges were by electronic mail, they are frank and uninhibited and perhaps sometimes wander from the basic issue. However, the exchanges raise basic issues that need to be addressed in any discussion of the future of unincorporated business forms.

Part II of this Article represents the actual exchange of views. By and large, the comments speak for themselves and were left untouched. Some minor editing of this text was made to eliminate obvious typographical errors and to insert footnotes when the authors referenced other published work. The authors also omitted a couple of observations that seemed irrelevant or substantively wrong, but that did not go to the merits of the debate.1 The selection of the four introductory messages that were placed on the LNET-LLC net was made solely by Professor Hamilton in an effort to give some perspective to the debate that followed. Part III of this Article, the Postscript, reflects comments that each author wished to make about this exchange following the Symposium at Washington and Lee University School of Law and after reviewing the earlier discussions.

Each communication begins with the name of the writer, the date of the communication, and the audience to which it was addressed.

I. Background

The genesis of this debate was a conference at the University of Colorado in early 1995 entitled "LLCs, LLPs, and the Evolving Corporate Form."2 During the course of this conference, a lively discussion developed among the participants (and to some extent within the audience) as to the desirable scope of limited liability in these new business forms. Several papers argued that limited liability should be accepted as a reasonable default form.3 Professor Hamilton had prepared an article on the development of the limited liability partnership (LLP) in Texas4 for that symposium which defended (or at least accepted) the narrow form shield of limited liability5 for electing LLP status. At the same time, Professor Hamilton's article criticized the New York and Minnesota statutes that provided a broad form shield of limited liability.6 At the Colorado conference, several participants strongly took issue with this conclusion and expressed the view that the shield of limited liability should be extended to cover many business relationships.

II. The Debate

Following the Colorado conference, a series of messages that considered the limited liability issue were posted on the LNET-LLC,7 a bulletin board for persons interested in limited liability companies and a host of interrelated "threads. " The first four messages set forth below frame the background for the more personalized discussion that followed. Even though the debate began with a discussion of the effect of changing default rules for general partnerships, the debate quickly turned to more fundamental issues about the kind of society in which we live.

Robert W. Hamilton: September 12, 1995 Broadcast on the LNET-LLC Net

I have been reading with considerable interest the recent dialogue [on this net] about limited liability in LLPs. LLPs were invented in Texas and I was indirectly involved in the enactment of the original statute. Last winter, I gave a talk that considered many of the questions being discussed on this net at the present time.8 I hope that those of you interested in the LLP problem will take the time to read that article. I might add that I do not agree that it is good policy to extend the limitation of liability in LLPs to general contract claims, as was done in Minnesota,9 New York,10 and the prototype statute, and as is now proposed below by Mark Pruner. …

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