Limited Liability Corporation is Dead, Long Live Responsible Ownership

Limited liability corporation has been a successful business structure that has many strengths. Now we have an economic system where a single platform is needed to manage trust-relations in the entire sector – think Airbnb or even for the hotel business. Companies affect to our democratic systems and dictate common person’s access to media. Can they longer exist as companies with only limited liabilities?

It’s not like there haven’t been changes in these structures before. The Limited Liability Corporation is actually a rather recent phenomenon. The first modern law to allow such structures originates from New York in 1811, and the idea was not universally accepted at the time (see The Post-Industrial Company).

Of course, LLCs have liabilities. However, their owners have only limited liabilities meaning they are only responsible for the damage caused by the company with the money they have invested to the company. Because of this, the company’s liability is also limited to the amount that can be measured in the event of a bankruptcy.

In Radical Markets , Eric A. Posner and E. Glen Weyl describe how large Institutional investors such as Blackrock and Vanguard own companies across various industries. As these companies operate different kinds of index funds, they aim to invest in companies so that the risk is as flattened out as possible. Nevertheless, there are clear signs that these institutional investors yield monopoly power by large shares in owning competing companies, such as airlines and banks, and can use this power to raise prizes. The outcome is a clear transfer of money from working people to the asset owners.

From liable to responsible corporations

The solution in the aforementioned book is clear: ban investment by Institutional Investors to competing companies. What we ponder in the publication Nordic Digital Promise is an even more radical suggestion: remove limited liability all together. When liability is removed, owners need to take care of the company so that it does not cause harm.

Clearly, many companies and especially those orchestrating their resources via platforms have different kind of power to dictate the life of a common person than companies used to have.

There is a need for new forms of socio-legal structures for collaborative human action to satisfy collective needs.

The first step to make owners directly responsible and thus also make companies fully responsible for their actions could be to ban certain toxic habits from the institutional investors. But why stop there? The reasons behind Limited Liability are not fully there anymore: accumulation of capital is not a bottleneck and risks can be managed better with better data and analytics (an important distinction here is to separate risk from uncertainty, which of course exists also in the future).

It’s possible to move slowly from partly liable to fully responsible companies, and the change starts from changing the attitudes and roles of the ownership. An inspiring example is Finnish platform company Sharetribe, operates with a steward-ownership model, which means among other things that shareholders get profit with limits, companies cannot be sold and voting shareholders need to stay in the company.

With first investor round with new structure, the company collected 500 000 euros in one week.

For the company that cannot be sold and which limit the possible profit.  

Related blogs

This blog series presents four theses on how to make sure that the future is a hyperconnected paradise rather than a dystopia. Each post presents one of the four theses that bring to life the Nordic promise of a hyperconnected society:

Introduction: How to build trust in the world, where tech giants are more powerful than governments?

Blog 1: It’s not enough to develop technology – If we want to benefit new technology, we need to shape the societal institutions

Blog 2: We let platforms govern our lives but how to govern platforms?

Blog 3: Limited Liability Corporation is Dead, Long Live Responsible Ownership

Blog 4: Hyperconnected technologies change how to do business – six value creation models that are successful in the future

This blog series is based on Demos Helsinki’s publication “The Nordic Digital Promise: Four Theses on a Hyperconnected Society”


Writers: Johannes Mikkonen and Johannes Koponen

Please, have a contact with Johannes, if you want to discuss the theme and how digitalisation changes your organisation. Follow Johannes also in Twitter.

This blog series is based on Demos Helsinki’s publication “The Nordic Digital Promise: Four Theses on a Hyperconnected Society”

Article photo: j zamora