A Brief History of Limited Liability Under California Corporate Law

The delayed triumph of limited liability

Keith Paul Bishop recently discussed the extent to which a corporation may be deemed an agent of its shareholders. In the course of doing so, he noted that Article XII, § 3 of the California Constitution previously provided that:

Each stockholder of a corporation or joint-stock association shall be individually and personally liable for such proportion of all its debts and liabilities contracted or incurred, during the time he was a stockholder, as the amount of stock or shares owned by him bears to the whole of the subscribed capital stock, or shares of the corporation or association.”

He went on to note that:

That constitutional provision was repealed on November 4, 1930. See Kaysser v. McNaughton, 6 Cal. 2d 248 (1936)….

Limited liability may be entrenched today, but suprisingly the opposite rule was once true in California.

Actually, limited liability has been entrenched in most of the United States for a very long time. As Bishop notes, however, California joined the party very late.

The discussion below the line draws on Todd Henderson’s and my book, Limited Liability: A Legal and Economic Analysis (AMAZON LINK), which Northwestern Law Professor Stephen Presser called “one of the most important books on one of the most important contemporary legal issues, the liability of individual and corporate shareholders for corporate debts.”