> many investors will have bought their share in the company, and that is worthless.
That's just part of the risk. We're now talking about the bill that is still on the table. If the "investors" were fully responsible for their "investments" they would not have worthless shares, but they would have to pay up for what the company still owes. That their risk stops at "shares being worthless" is exactly what I mean by them being shielded.
I learned the energy firm was a coop: they have no shareholders.
But the discussion is still interesting, well at least to me :)
If they invested $100 made decisions that cost $150 and now lost their entire $100 investment, they are shielded against the $50.
Hence, anything that has real costs higher than their invested stake has effective costs for them at their invested stake. They are shielded to some extent. Especially for low probability high cost events.
This is exactly the point of a limited liability company, but it comes with slightly perverse incentives.
Some times smaller companies do stuff that makes them a lot of money but also creates debt or legal liabilities (transgressing some environmental laws or not paying taxes). When they go bankrupt later the "investors" already took the proceeds out by dividends. This certainly happened a lot.
Shielded doesn't necessarily mean that they are protected from all losses. Limited liability means that the liability is limited by the investment that was put in: they can lose up to their investment, but no more.
> With limited liability the investors are never liable for the debts.
Yes, assuming you meant "shareholders" rather than "investors"—creditors are also investors, having put money into the company with the expectation of a return, but would not be liable for borrowers' debts regardless of limited liability. It's the shareholders who are shielded from liability to the corporation's creditors. But the creditors know this and accept the risk as a cost of doing business with a limited liability corporation. If they don't like the corporation's prospects they are not obligated to extend credit.
That's just part of the risk. We're now talking about the bill that is still on the table. If the "investors" were fully responsible for their "investments" they would not have worthless shares, but they would have to pay up for what the company still owes. That their risk stops at "shares being worthless" is exactly what I mean by them being shielded.
I learned the energy firm was a coop: they have no shareholders.
But the discussion is still interesting, well at least to me :)