Corporate transparency

Owen Byrne owen@permafrost.net
Wed, 9 Jan 2002 00:15:33 -0400


> 
> > And since the corporation is a designed legal entity, who is to say that
> > there isn't some other legal entity that couldn't work better.
> 
> You'll notice that I haven't made that claim.  I'm pragmatic.  I don't really care whether there's one that works better
> if the cost of finding it isn't outweighed by its benefit.  I'm unconvinced that this is likely, and fairly convinced
> that some of the modifications / alternatives that have been proposed ("transparency" in its stronger formulations) are
> completely unworkable.
> 
I wasn't really disputing it, just pointing out the fact that its a construct. 

> > Also aren't you sort of assuming some information-hiding in your argument about
> > risk? Someone is bearing the risk - the creation of a legal entity called a
> > corporation does not make the risk disappear - it just shifts it to others,
> > namely everyone not in the specific corporation.
> 
> I don't think we're talking about the same risk.
> 

Financial risk? 
> 
> > In fact, this is already happening - Once upon a time corporations did work as
> > limited liability companies. Now if you start one and try to get financing,
> > you're almost guaranteed to have to put up personal guarantees.
> 
> I've never had to through numerous (and sometimes complicated) incorporations, nor would I accept that as a condition of
> funding.  Nor am I personally aware of any other (technology, anyway) venture or angel backed early-stage companies that
> have had to do so.
> 
You're in Silicon Valley, I guess, or somewhere where money grows on trees.
Photopoint.com - now tits up - which was at one point the leader in the online photo 
archiving business - is just down the street from me. Well they were. Once upon a time
they were a little dinky Java company called Pantellic Software. And the officers 
had to put up their houses to start the company. Then they started a web site called 
"photopoint.com." Suddenly there was all the money they could ever want, no personal 
guarantees, VC money. Course you have to move to California, and you have spend $500,000
a month and you have to give away your service. Now its history. Think they're going to need personal guarantees the next time around? I think they would probably prefer mortgaging 
their houses to dealing with VCs again.  

Here's a random quote from the internet:

"The prime advantage of incorporation, limited liability, may be undercut by personal 
guarantees and/or credit agreements. The corporation's much vaunted limited liability is
irrelevant if no one will give the oorporation credit." 
from (http:/sbininfocanada.about.com). 

Actually the fact that you have been through numerous complicated incorporations without
experiencing a practice that most things I read has become prevalent says something
about information-sharing, doesn't it? 

I'm sure you're brilliant, etc., etc. but isn't the
reason that these ventures haven't had to put up personal guarantees is likely intangibles
like contacts, reputation, etc. In other words, because of information available to those
companies that is not available to us dimwits up here in Canada (although I expect the
funding environment around Ottawa is probably similar).. 

Owen