Limited liability is regarded as a key innovation for its liberation of risky capital ventures from a business owner’s fear of ruin. Long ago, the concept’s failure to restrain shocking corporate actions, as in British East India Company’s case, made rules of governance necessary.
Today, Argentina’s proposal to allow AI-run companies has revived a debate on whether limiting investor liability to the money they invest could be reckless.
In India, the concept is rendered fuzzy by group structures with cross-subsidies woven into a web of listed and private entities under single control. Personal guarantees for loans have thus been part and parcel of India’s credit market.
This blurring of debt liability is legitimate, but can haunt insolvency cases. In the case of Essel Group’s chief Subhash Chandra, for example, ‘related-party lending’ allegedly led to only a tiny fraction of his personally backed debt being approved for recovery by a creditor-panel vote.
At one level, India’s bankruptcy code might need yet another scan for a loophole-plugging exercise. At another, lenders must reduce the scope for confusion arising from personal guarantees, even as we ponder liability limits in the novel context of AI agency.