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Old 07-28-2019, 03:12 AM
Wrenching Spanners is offline
Join Date: Jun 2011
Location: London
Posts: 538
Originally Posted by Triskadecamus View Post
A corporation can own a corporation. It limits its liability to the amount of money the exercise costs. A corporation can loan its totally owned corporation enough money to build and operate very dangerous equipment, and make the terms of the charter specifically prevent the subsidiary from retaining any capital during the probable time period based on the useful lifetime of the very dangerous equipment. When that equipment fails to function, even catastrophically, the owning corporation's loss is never more than the cost of the loan. Profits from goods sold before the catastrophe have already been paid out as dividends. The very name Limited Liability Corporation comes from the function described.
What you are describing is racketeering, which is illegal. If a corporation sets up a subsidiary with the intention of breaking the law, such as environmental regulations, the actors who set up the subsidiary can be criminally charged and the corporation is not shielded from fines nor liability. Also, in the US, the leaders of the corporation can be charged under the Sarbanes-Oxley act. For civil actions, such as creditors seeking payment, a corporate structure involving independent subsidiaries does provide a layer of protection against liability. However, that protection can be overcome by proof that there was a conspiracy to commit deceptive practices, or by proving that the independent subsidiary was not acting independently. Also, if the corporation is in a regulated industry such as financials services, the regulations will limit the actions of corporations to avoid financial responsibility.