Respond to given statements:
A corporation is a legal construct with an identity separate and apart from its owner(s). The primary legal advantage to converting one's business from an unincorporated enterprise to the corporate form is the ability to avoid personal liability for the business's financial obligations. Since the corporation is distinguishable from its owner, the owner's personal assets cannot be seized to satisfy business indebtedness. This effectively means that an owner can "crash and burn" a corporation financially, bankrupt the business, and walk away from the "flaming wreckage" of the corporation without personal obligation for business debts.
Is it ethical for an owner to use the corporate entity to avoid personal obligation for business debts?
1. A person that creates a business to just allow it to crash and burn is not running the business in an ethical manner. There is more at stake than just the business - there are stakeholders in the business that include the stockholders, employees, suppliers and distributors. And even if the person don't have a personal obligation for the business debts, i.e. they don't have a monetary obligation but they may have other obligations due to legalities or regulations that may impact their business. In addition, the persons' credibility is impacted, potentially impacting any future endeavors that they may want to partake in.
The Corporation movie was very interesting - and kind of depressing. I remember the Kathy Lee Gifford issue with the children turning out her products. While the publicity of the situation made a big deal out it, it didn't seem to make a big enough deal in regards to actually fixing the issue. I think that was demonstrated over and over again within the movie. The take way from the movie almost seems to be that in the business world it's almost impossible to run a completely ethical business and satisfy the business' fiduciary duty of providing some sort of return for the stakeholders. Can a business run a completely ethical business and still turn a profit?
Corporations from the United States contract the making of products to other countries that have such a low standard of living so that the U.S. business can pay tiny wages but in the country that is being 'exploited' that tiny wage is the difference between being able to feed your family or starving. Then as the standard of living increases, the business moves on to another country with a new labor force. But does that make it ethical?
2. If an individual establishes a corporation with the intention of letting it "crash and burn", then yes I think that would be very unethical of that person. There are also other individuals that will bail out on a corporation once it starts to fail because they will not be held personally liable for the business debts. I think in that situation, the individual is also acting unethical. I am not sure how often that actually happens though. I feel in most cases, that a person establishes a corporation with the intent of making it a very successful organization and will do whatever they can when things get tough. A lot of individuals may invest a substantial amount of capital into the corporation and if the corporation fails this is still a personal investment that is lost. The more a person has at stake in the corporation, the more that person will try to save it from going bankrupt. Sometimes, no matter what a business owner does to save a company, it is not enough and the business still fails. When this is the case, I think the corporation is a good choice to protect that person from losing everything and ending up out on the street.