41. Incorporation: Purpose & Protection

Purpose for a Corporation

Corporations should not have their primary purpose be to maximize profits for its shareholders. ¬†Originally, states chartered corporations to achieve a specific public purpose (such as building roads or other public infrastructures). ¬†However, that purpose has devolved into the singular purpose of maximizing profits for a corporation’s shareholders.

Governments should impose on corporations the requirement that their primary purposes, as stated in their Article of Incorporation, be something other than the maximizing of profits for its shareholders. These ‘benefit corporations’ should strive to operate in order to first fulfill the purposes for their incorporation, then try to make as much profit as possible in order to help ensure that the corporation is financially self-sufficient so that its continued existence in the future is assured.

Redefining the Protections Offered by Incorporating

An incorporated business should not shield its members (especially owners, top-tier managers, etc.) entirely from personal financial losses in the event of a bankruptcy, lawsuit or other financial obligations. Rather, the financial liabilities of a corporation should be paid first, naturally, from the assets of the corporation, then from the personal assets of its members, beginning with the owner and top level management. People lower down on the chain of command would be protected from all losses unless they were involved in illegal or unethical activities, or criminal mistakes that resulted in liabilities for the corporation. However, the last $5,000,000 in a corporate member’s assets should be protected from all financial liabilities relating to the corporation, unless the violations of the corporation were willfully egregious. In such cases, the courts may decide to lower the asset protection threshold to $1,000,000 or even less.

An individual member of a corporation having assets which exceed the threshold for protection offered by incorporation should be allowed to pick and choose what assets to keep, in any combination of real estate, cash, bank accounts, vehicles, art collections, or any other possible kinds of possessions. For example, if the amount of assets an individual is allowed to keep is determined by the courts to be $2,000,000, then any amount in excess of this $2,000,000 level would be required to be liquidated in order to fulfill the corporation’s debt obligations. That individual can choose, for example, to keep his $1,000,000 house, $400,000 in the bank, a $400,000 art collection, $100,000 in miscellaneous household items, and four $25,000 cars. The court cannot, in any way, impose on how the value of these remaining assets should be distributed. That would be left entirely up to the individual.

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