Unlimited Shareholder Liability through a Procedural Lens

Abstract

Corporate law scholars have recently called for the reconsideration ofthe doctrine of limited shareholder liability. Specifically, ProfessorsHenry Hansmann and Reinier Kraakman have proposed that shareholderscould be made liable for their pro rata share of a corporation's excesstort liability through changes in state tort law. In this Article,Professor Alexander argues that Professors Hansmann and Kraakmandrastically underestimate the procedural obstacles that may frustratetheir proposal's implementation or significantly increase its costs.Professor Alexander asserts that state courts will often lack personaljurisdiction over out-of-state shareholders who have insufficientcontacts with the forum state apart from their shares in the liablecorporation. Additionally, Professor Alexander argues that choice oflaw rules may require the forum court to apply the shareholderliability rules of the state of incorporation, and not of the state inwhich the tort occurred. Professor Alexander concludes with anevaluation of alternative means of imposing liability on shareholdersthrough federal legislation.Professors Hansmann and Kraakman respond by offering a critique ofProfessor Alexander's doctrinal analysis of applicable personaljurisdiction and conflicts of law jurisprudence.