Community: Unlimited Liability

I am still fresh from the Leadership Summit held this weekend, where we had lot of people from the business world. Hence we are going to have a lesson based on company laws this morning.

A few months back, Ian and I discussed the possibility of hiving off the Centre for leadership as an independent company. When we have a company, one of the first things we need to finalise is the name. So we set about naming our company. Due to my limited creativity, I suggested that we keep it simple and just combine our first names for the company name. Of course there was one problem. Ian’s first name had only three letters and he is the principal, so I cannot add more than three letters of my first name to the company name. So I agreed and we came with this name. Mad Ian Consultants…Understandably, Ian was not amused, nor was the Board of directors. So we decided to increase the scope of the name and wanted to add some other significant members of the faculty to the name of the company. The choice fell on Dr Idi and Dr Atola. But the condition of only three letters of the first name remained, because Ian is the principal and we cannot have more prominence for others. So then we came up with this name. Mad Ian Idi Ato Consultants…. When we approached the Board with this name, the Board understandably rejected the whole idea and the company was never born.

Now let us say that if we were able to come up with a better sounding name, and the board agreed to the formation of the company, we would have had to register the company. And when we register the company, we would have had to register it as MIIA Consultants Pvt Ltd, or if it was in the US, we would have registered it as MIIA Consultants LLC. So this morning, I don’t want us to be focused on the first part of the name, but on the three letters that the legal name ends with Ltd. Or LLC.

To study this further, let us go outside SAIACS (I am keen on keeping my job and so do not want to dwell on Ian’s name too much.)

Do you recognize these men?

What do you think is common between Vijay Mallya, Subrato Roy and Ramalinga Raju? They are all discredited business men, who got into the wrong side of the law. But if you really look at what they did and what punishment they got, you might still wonder at the proportionality of the punishment. Mallya is actually still roaming free with all his personal finances intact. Subrato Roy, even though out on parole, is still enjoying all the benefits of his personal finances. Satyam Raju though he is in Jail, still has a lot of wealth to his name and that cannot be taken away. Employees of Kingfisher airlines who do not get their salaries. Or depositors in the Sahara ventures who lost their hard earned money etc cannot get any refunds from the personal wealth of a Mallya or a Subrato Roy. Do you know why is this so? Let us look at their companies. Their company named end with those three letters Ltd. Mallya’s companies are Kingfisher Airlines Ltd, or United Breweries Ltd. Same with Subroto Roy’s companies; Sahara India Life Insurance Company Ltd, Sahara Next Pvt Ltd. Etc etc.

You see those crucial three letters Ltd coming at the end of every name of the organisations. What does that really mean? The Ltd stands for Limited. What does Limited really mean when it comes in the name of an institution? American Companies make it very clear. They use the term LLC. LLC is the US equivalent of Indian Ltd. LLC stands for Limited Liability Company. The variations of that are Limited Liability Partnerships, or Limited Liability corporations. So that is what the LLC or the Ltd stands for. It stands for the limited liability that the owners/ shareholders have in case something goes wrong. The owners of the company have only limited liability to the extent of the nominal value of the shares that they hold in a particular company. Their personal wealth is protected, and cannot be touched just because the company went bankrupt or smaller shareholders lost their life savings due the mismanagement of the owners.

I hope you get the drift of where I am going with this. In the world, Institutions are build based on limited liability. You will see this when you buy an insurance policy or you deposit money in a bank, or you download a software, or you buy a product and look at the warranty or guarantee card. In the world, relationships or institutions are built on the principle of limited liability.