As a general principle of corporate law, in the United States, a parent entity and the sole owner are not liable for the acts of its subsidiaries.
[9] Provided that the parent entity or the sole owner do not maintain separate legal identities from the subsidiary (through inadequate/ undocumented transfer of funds and assets), the judgment is likely to be in favor of the creditor.
By the 15th century, English law had awarded limited liability to monastic communities and trade guilds with commonly held property.
[citation needed] In the 17th century, joint stock charters were awarded by the crown to monopolies such as the East India Company.
The development of limited liability facilitated the move to large-scale industrial enterprise, by removing the threat that an individual's total wealth would be confiscated if invested in an unsuccessful company.
Large sums of personal financial capital became available, and the transferability of shares permitted a degree of business continuity not possible in other forms of enterprise.
Further, the extent to which small and medium investors were excluded from the market was admitted and, from the 1880s onwards, shares were more commonly fully paid.
In 1989, the European Union enacted its Twelfth Council Company Law Directive,[23] requiring that member states make available legal structures for individuals to trade with limited liability.
[25] Some argue that limited liability is related to the concept of separate legal personality bestowed on the corporate form, which is promoted as encouraging entrepreneurship by various economists,[26][27][28][29] enabling large sums to be pooled towards an economically beneficial purpose.
[1][30] An early critic of limited liability, Edward William Cox, a lifelong member of the Conservative Party, wrote in 1855: [T]hat he who acts through an agent should be responsible for his agent's acts, and that he who shares the profits of an enterprise ought also to be subject to its losses; that there is a moral obligation, which it is the duty of the laws of a civilized nation to enforce, to pay debts, perform contracts and make reparation for wrongs.
Limited liability is founded on the opposite principle and permits a man to avail himself of acts if advantageous to him, and not to be responsible for them if they should be disadvantageous; to speculate for profits without being liable for losses; to make contracts, incur debts, and commit wrongs, the law depriving the creditor, the contractor, and the injured of a remedy against the property or person of the wrongdoer, beyond the limit, however small, at which it may please him to determine his own liability.