Lloyd's Maritime and Commercial Law Quarterly

Professor Francis D Rose

Document

THE LIMITED LIABILITY OF COMPANY DIRECTORS

Ross Grantham *

The prevailing wisdom is that the principle of limited liability protects shareholders and only shareholders from liability. This article explores this premise from the perspective of the historical development of limited liability, the principal economic justifications for limited liability, and the doctrinal implications of immunizing directors from personal liability for their actions in managing the affairs of the company. The author’s principal conclusions are that limited liability need not be understood as a wholly statutory concept, that the economic justifications for limited liability for shareholders apply with considerable force to directors, and that an extension of protection to directors is not inconsistent with the fundamental doctrinal functions of company law.

* Professor of Commercial Law, T C Beirne School of Law, The University of Queensland. I am grateful to my colleagues at the University of Queensland, Professor Charles Rickett and Mrs Barbara Thorsen, for their assistance. The following abbreviations are used in the footnotes:

Ford : R Austin and I Ramsay, Ford’s Principles of Corporations Law (12th edn, LexisNexis, Sydney, 2005); Davies, Introduction : PL Davies, Introduction to Company Law (Clarendon, Oxford, 2002);

DuBois: AB DuBois, The English Business Company after the Bubble Act 1720–1800 (New York Commonwealth Fund, New York, 1938);

Gower 6th edn: PL Davies, Gower’s Principles of Modern Company Law , 6th edn (Sweet & Maxwell, London, 1997); Gower 7th edn: PL Davies, Gower’s Principles of Modern Company Law 7th edn (Thomson, London, 2003); Grantham & Rickett, “Bootmaker’s Legacy”: R Grantham and C Rickett, “The Bootmaker’s Legacy to Company Law Doctrine”, ch 1 of R Grantham and C Rickett (eds), Corporate Personality in the 20th Century (Hart, Oxford, 1998);

Halsbury: Halsbury’s Laws of England , 4th edn (Butterworths, London, 1973);

Hansmann and Kraakman, “Essential”: H Hansmann and R Kraakman, “The Essential Role of Organizational Law” (2000) 110 Yale LJ 387;

Hansmann and Kraakman, “Unlimited”: H Hansmann and R Kraakman, “Toward Unlimited Shareholder Liability for Corporate Torts” (1991) 100 Yale LJ 1879;

Hansmann and Kraakman, “What is Corporate Law?”: H Hansmann and R Kraakman, “What is Corporate Law?” in R Kraakman, P Davies, H Hansmann, G Hertig, K Hopt, H Kanda, E Rock, The Anatomy of Corporate Law (OUP, New York, 2004), ch 1;

Harris; R Harris, Industrializing English Law (CUP, Cambridge, 2000);

Hunt: BC Hunt, The Development of the Business Corporation in England 1800–1867 (Harvard Economic Studies, 1936);

Parkinson, Corporate Power : J Parkinson, Corporate Power and Corporate Responsibility (Clarendon, Oxford, 1993);

Posner, Economic Analysis : R Posner, The Economic Analysis of Law , 5th edn (Aspen, New York, 1998);

Sealy, “Perception and Policy in Company Law Reform”: L S Sealy, “Perception and Policy in Company Law Reform” ch 2 of D Feldman and F Meisel (eds), Corporate and Commercial Law: Modern Developments (LLP, London, 1996).

I. INTRODUCTION

THE LIMITED LIABILITY OF COMPANY DIRECTORS

363

The rest of this document is only available to i-law.com online subscribers.

If you are already a subscriber, click Log In button.