Not quite. In the US this condition is handled at the back end. Running a corporation or LLC without sufficient capitalization can be grounds for piercing the liability shield in a lawsuit.
> Running a corporation or LLC without sufficient capitalization can be grounds for piercing the liability shield in a lawsuit.
Which is exactly how it should be handled, IMO: Deal with the abuse situations directly.
Forcing new companies to capitalize with an arbitrary amount of money at time of founding penalizes small players who want to start a company. It's also not a hurdle at all for large players who want to commit large frauds.
Is the gmbh pierce proof? Because then I like the situation where if you start with $25,000 under no circumstance can they get past the liability shield.
Usually, yes. There are a few exceptions, such as serious misconduct, tax fraud and not declaring insolvency when necessary. But as long as you're following the law, you're fine.
I have the impression the situations where that actually happens are at least arguably serious misconduct, and usually targeted at someone with significant assets.
A construction company that pockets ten million dollars and doesn't build anything probably can't shield its owner this way, but a single-developer software consultancy that pockets ten thousand dollars and delivers buggy code can.
But the larger point still stands: Limited liability was granted “on the front end” without the entity needing to demonstrate a minimum amount of capital. You’re only pointing out that in the U.S. that it’s possible that “on the back end” the owners of the entity might become personally liable.
Thats cause the software and computing industry early on, disclaimed all liability.
"Computers are hard, yo!". It devalues the profession.
And I thought no liability was bad enough... But no. Now its LLMs and " for entertainment purposes only". I take it management and leadership also read that, and don't give one fuck.
The ability to build reliable software has existed for a long time. Commercial airlines make heavy use of it, and serious failures are vanishingly rare.
The problem is building software to those standards of reliability is expensive and slow. Consumer software never justifies it. Business software rarely does. If you want me to accept liability for the consequences of bugs in code I write, I'm giving you a schedule five times as long and a price twenty times as high.
It does not need 100% error free anything. Hell, our food and goods we buy has error rates. Recalls, replacements, etc. Mistakes happen.
Liability is about taking responsibility for your stuff you emit. And the fact that software companies are getting worse shows me that there isn't any sort of maturity in this industry.
You can't even buy a fucking game without it being encrusted in anti-user DRM. And even on MS Windows with a Windows game that doesn't run, there is no basic warranty of "does this thing run?" You're basically shit outta luck if it doesn't. And if you bought it on Steam, better not charge back or they delete your account as a vengeance response. And lack of any liability and responsibility is why they can.
Its also a whole other thing to then rely on said software for correctness. That's what 'limited liability' is all about. If you need heavier liability, then sure, reach out and pay for it.
But the fact that software has gone from 'No Liability' to 'for entertainment purposes only' is a fucking farce for the software industry.
Much the same in the UK. Usually some kind of fraud or failing to stop trading when it was obvious insolvency was unavoidable. No minimum capital requirements either.
While extreme cases are the easiest to imagine, in real life the plaintiff almost always argues to pierce the veil and the defendant always argues the opposite, and both sides earnestly believe that they are right.
It's so exceptional in the UK you can run a series of fraudulent businesses which are incorporated, "buy" services, don't pay for them, then declare themselves insolvent, rinse and repeat, and there's a fair chance you'll get away with it.
It's called phoenixing. There are good few bans for it every year, but almost no convictions for fraud.
Not in the US it’s not. LLCs don’t shield your assets from personal negligence. So if you have a single member LLC with no employees (very common), an awful lot of what prompt a successful suit will be because of negligence on your part.
Haven't heard anything about LLC capitalization in this context. Liability shield can be pierced, but only if LLC is misused (i.e. "when the company is treated as a personal "alter ego" and used to commit fraud, injustice, or illegal acts"). Lack of capitalization is not one of the reasons as long as you treat it as a company, not your wallet.
No there’s lots of reasons it can’t be pierced. It doesn’t shield you from liability that results from your own negligence, and for owner operator businesses that’s a large attack surface.
This is a core difference between common law and civil law. In common law systems, things tend to get sorted out after the fact, with a judge's discretion, only if things go really wrong. In civil law systems they try to design a perfect system of laws that makes problems impossible.
Have to prove fraud to get there. "Under" capitalization is a judgment call. Effectively, it's very rare. An LLC launches with effectively zero dollars literally dozens of times a day.
