The argument is that shareholders who invest in a company should be liable to personal injury claimants who cannot achieve satisfaction from a wrongdoing company. That liability would be pro-rata unlimited liability attaching at the point of knowledge of claims. Liability would attach to both corporate and natural person shareholders. There are a number of reasons for this. First, without such a rule, shares would be more valuable in the hands of corporate shareholders than natural person shareholders, creating inequalities and distortions in their prices. Second, without such a rule, the tendency would be for companies to incorporate endless layers of subsidiaries in order to provide the maximum level of protection for favoured natural person shareholders. Otherwise, the tendency would be for larger parcels of shares in risky companies to become more attractive to natural person shareholders in hard-to-reach jurisdictions, claimants thus being defeated by difficulties of enforcement. The simplest rule is a rule that treats all shareholders in the same way. Third, concerns about such a rule would be ameliorated (to some extent) by the reality that holders of small parcels of shares would rarely be called upon to contribute a pro-rata share of damages to personal injury claimants because of potential costs of enforcement and of administration.
A rule of modified limited liability might, should policymakers desire it, be accompanied by a defence available to shareholders where they have taken steps to publicise corporate decision-making which is likely to give rise to unreasonable risks to life and/or health of workers, consumers or other persons and/or where they have taken steps to prevent such activities being conducted – such as writing to the board of directors opposing such activities. Such a defence would encourage some shareholders to take a greater interest in corporate strategy and open up debate about risky activities and products. However, it could also result in the development of very defensive corporate strategies, which would stifle necessary innovation and investment. Such a defence would also undermine the strict nature of modified limited liability and reduce the extent to which shareholders would be required to take responsibility for personal injury claims against insolvent companies. For these reasons, the defence for the law firm Abogados de accidentes it is not argued for here.