#liability

The country I'm talking about is Brazil, which has had limited limited liability since 1937:

https://lpeproject.org/blog/when-workers-pierce-the-corporate-veil-brazils-forgotten-innovation/

As Mariana Pargendler writes for the LPE Project, Brazil put limits on limited liability to address a common pattern of corporate abuse. Companies would set up in Brazil, incur a lot of liabilities (say, by poisoning the land, water and air, or by stealing from or maiming workers), and then, when the wheels of justice caught up with them, the companies would fold and re-establish themselves the next day under a new name.

Like I say, this happens all over the world. It's incredibly common, and even the pettiest of crooks know how to use this trick. I know someone whose NYC apartment was flooded by the upstairs neighbor, who decided that they didn't need to worry about the fact that their toilet wouldn't stop running – for months, until the walls of the apartment downstairs dissolved in a slurry of black mold. The upstairs neighbor owned the apartment through an LLC, which they simply folded up and walked away from, while my friend was stuck with a giant bill and no one to sue.

The limited liability company is the scammer's best friend. In the UK, an anti-tax extremist invented a tax-evasion scam whereby landlords pretend that their empty commercial buildings are tax-exempt "snail farms" by scattering around some boxes with a few snails in them:

https://www.patreon.com/posts/149255928?collection=1941093

When this results in inevitable stonking fines and adverse judgments, the "snail farmers" duck liability by folding up their limited liability company after transferring its assets to a new LLC.

Capitalist realists will tell you that this is just the price of efficient capital formation. Without total, airtight limited liability – the sort that allows for this kind of obvious, petty ripoff – no one would be able to raise capital for anything.

Brazil begs to differ. In 1937, Brazil made parent companies liable for their subsidiaries' obligations, with a system of "joint and several liability" for LLCs. This was expanded with 1943's Consolidation of Labor Laws, and it worked so well that the Brazilian legislature expanded it again in 2017.

Remember back in 2024, when Elon Musk defied a Brazilian court order about Twitter, only to have Brazil freeze Starlink's assets until Musk caved? That was the "joint and several" liability system:

https://www.nytimes.com/2024/09/13/world/americas/brazil-musk-x-starlink.html

As Pargendler writes, Brazil's liability system "represented a distributive choice: prioritizing Brazilian workers’ ability to enforce their rights over foreign capital’s interest in minimizing costs through corporate structuring."

Pargendler (who teaches at Harvard Law) co-authored a paper with São Paulo Law's Olívia Pasqualeto analyzing the impact that Brazil's limited liability system had on capital formation and corporate conduct:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6105586

Unsurprisingly, they find that there has been a steady pressure to erode the joint and several system, but also that some countries (the US and France) have a "joint employer" doctrine that is a weak form of this. Portugal, meanwhile, adopted the Brazilian system, 70 years after Brazil – this transposition of law from a former colony to a former colonial power is apparently called "reverse convergence":

https://lpeproject.org/blog/heterodox-corporate-laws-in-the-global-south/

More countries in the global south have adopted regimes similar to Brazil's, like Venezuela and Chile. Other countries go further, like Mozambique and Angola. Somewhere in between are other Latin American countries like Peru and Uruguay, where these rules have entered practice through judicial rulings, not legislation.

The authors don't claim that perforating the corporate veil solves all the problems of exploitative, fraudulent or corrupt corporate conduct. Rather, they're challenging the capitalist realist doctrine that insists that this system couldn't possibly exist, and if it did, it would be a disaster.

A hundred years of Brazilian law, and Brazil's globe-spanning corporate giants, beg to differ.

Image: Gage Skidmore (modified) https://commons.wikimedia.org/wiki/File:Elon_Musk_(54349817783).jpg