Rethinking Limited Liability. Beneficial Ownership Transparency to Reform the Liability System

Abstract

Although limited liability is invoked as a tool to promote economic growth, this paper explains that limited liability has evolved such that it is automatically awarded upon the creation of a legal vehicle, often in situations where it was never meant to apply (eg between a parent and its subsidiary). In addition, this paper describes the unfairness of a system which caps losses but not gains, by transferring the losses to the rest of society. From a financial justice perspective, the system of liability should be completely reformed. For reforms to be effective, however, it is necessary to hold the beneficial owner liable and to prevent them from shielding their assets through the creation of trusts or private interest foundations.