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This is an important subject seldom discussed by Muslims, our lives are ruled by corporations and their formation in secular laws as having limited liability. I believe the Shariah would prevent this type of corporation from operating and thus prevent Capitalist business from emerging.

From Wikipedia:

Limited liability is a concept whereby a person’s financial liability is limited to a fixed sum, most commonly the value of a person’s investment in a company or partnership with limited liability. In other words, if a company with limited liability is sued, then the plaintiffs are suing the company, not its owners or investors. A shareholder in a limited company is not personally liable for any of the debts of the company, other than for the value of their investment in that company.


Corporations essentially exist to allow groups of people to act collectively, without taking personal responsibility if the entire thing goes down like a lead balloon. Sure, if an employee of a corporation behaves in a criminal manner, they are sometimes jailed. Yet corporations — ever since the birth of the modern corporation through Standard Oil — have created what is known as the agency problem. Corporations allow their owners to win, without the possibility of deep losses. And what does this mean in terms of responsibility? It means that things like the BP Oil spill are much, much more likely. Because if you can’t get hurt, you’re not going to exercise diligence in the same way you would if you could get more hurt. This is why the juggernauts of global industry — the titans of Wall Street in particular — blow up so frequently and so violently. Corporations are firewalls, spinning mammoth profits through risky bets, but allowing management and shareholders to hide behind them when their risky behaviour comes home to roost. And what happens if the house falls down? The creditors — or more frequently in recent years since we adopted this perverse bailout culture, the taxpayer — take the hit.

Either limited liability should be abolished — corporations could still exist, but their owners and management are personally responsible for any debts and destruction incurred — or their behaviour should be taxed punitively to encourage individual and small business initiatives — the real wealth creators, job creators and innovators — over large scale destructo-juggernauts. At the very least, we should completely stop bailing them out when they blow up. That’s responsibility.

Corporations are certainly not free market entities. Their very reason for existence — limited liability — is created through government fiat. Capitalism and markets existed long before the creation of limited liability, and surely will exist for a long time after its demise.