This makes me think about a really interesting discussion on the awesome History of Business podcast with Adrian Wooldridge[0].
Adrian Wooldridge was essentially arguing that especially with the shift towards more privately owned companies (as in, non-publicly traded) that we've seen in the US, limited-liability companies give an incentive for a large amount of risk.
Essentially there's an asymmetry, because companies going bankrupt have no liability for debts, but they gain all profits if things go well. This has always encouraged risk (and often in a good way), but publicly traded companies are ultimately owned by retirement funds etc, which is not the case for private companies. So the risk of bankruptcy is still covered by the general public, but a lot less of the benefits are felt by the public.
I think we're in fairly uncharted waters for what this risk asymmetry means for the US and global economy. It doesn't sound like something that'll end well, I expect we'll see a lot of public fall out at some stage.
Institutional investors, including retirement funds, university endowments, etc. invest in private companies, either directly or via private equity. I believe Harvard's endowment, for example, has a significant portion of its portfolio in non-public companies.
> Essentially there's an asymmetry, because companies going bankrupt have no liability for debts, but they gain all profits if things go well. This has always encouraged risk
Companies are liable for debts. I don’t know why you would conclude they’re not. If a company can’t or won’t pay their debts, they go into bankruptcy, which has significant consequences up to the company losing its assets to the creditors.
Lenders are not dumb. They collect interest in exchange for the risk of lending. This is the symmetry that you’re not seeing. The lenders can also structure their lending in ways that if the company can’t pay, the lenders get assets from the company in exchange.
LLCs apply at a lower level (not AI lab scale), and shielding individuals from downside risk is a feature, not a bug. It’s by design. There are a lot of countries where the only way to get startup funding involves signing your personal finances away in the event of failure. Financial ruin if the company doesn’t work out, aside from some minimal protections. Do you know what the small business and startup environments are like in those countries? Abysmal. Nobody can afford to take the risk, so the big establish companies are the place to work.
You completely missed the point.
Do you have the link handy?
Should have shared originally! Here it is:
https://www.pushkin.fm/podcasts/business-history/how-the-com...
(Note the discussion is about the evolution a of the concept of a company generally, the point I mentioned gets made towards the end, but I'd highly recommend listening to the whole thing)
>Essentially there's an asymmetry, because companies going bankrupt have no liability for debts
That's not what a limited-liability company is, not what it means. Anthropic and OpenAI are not LLCs.
>So the risk of bankruptcy is still covered by the general public, but a lot less of the benefits are felt by the public.
That's not how any of this works. Reading comments like this on HN and from elected officials is disappointing.
You're talking past the OP commenter. Not all companies whose owners enjoy the benefits of limited liability are Limited Liability Companies (LLCs). The other commenter was discussing the general concept of a company whose owners enjoy limited liability, meaning they cannot be held responsible for the company's debts or other financial obligations beyond the value of their ownership stake, i.e. their _liability_ for the company's obligations is _limited_. There are many corporate forms that provide this benefit to their owners, including common US corporate structures like LLCs, C Corps, S Corps, and Limited Liability Partnerships (LLPs). It's important to note that the terminology varies across jurisdictions, so the specific structure we call an LLC might be called something else entirely or might not exist at all.
Which is precisely why the OP commenter framed their argument in terms of the general concept of limited liability. The argument applies to any company structured with joint ownership and limited liability, whether we happen to label that corporate structure C Corp, Private Limited Company (Ltd.), Gesellschaft mit beschränkter Haftung (GmbH), or even Limited Liability Company (LLC).
>You're talking past the OP commenter.
No I'm not. The OP clearly doesn't understand the basic concepts. "Because companies going bankrupt have no liability for debts" is misunderstanding what "limited liability" means.
>Which is precisely why the OP commenter framed their argument in terms of the general concept of limited liability.
That's not the general concept of limited liability. They are simply mistaken. They just parroted Reddit and BlueSky takes.
I hope this doesn't sound rude, but I think you've interpreted my point in the least charitable way possible.
Non LLC are not unlimited liability companies. Those have existed historically, and mean that owners themselves are legally on the hook for any company debt, without limit.
Since I'm trying to repeat back something I heard elsewhere, I'll link to the original discussion. Adrian Wooldridge is a long term writer for Bloomberg and not sine random guy on a soapbox. The discussion is well thought out, and not emotionally charged. Sorry if I've accidentally given a different impression.
https://www.pushkin.fm/podcasts/business-history/how-the-com...
For this argument, is there a meaningful difference between a PBC and an LLC?
There are many meaningful differences, from corporate structure to ownership and tax classifications. For example, LLCs cannot issue private stock to shareholders. PBCs are effectively C corporations[0], but with bylaws that include making a positive impact on society (not just maximizing profit)[1].
[0] https://en.wikipedia.org/wiki/C_corporation
[1] https://en.wikipedia.org/wiki/Benefit_corporation