Corporate liability

Corporate liability, also referred to as liability of legal persons, determines the extent to which a company as a legal person can be held liable for the acts and omissions of the natural persons it employs and, in some legal systems, for those of other associates and business partners.

Since corporations and other business entities are a major part of the economic landscape, corporate liability is key element in effective law enforcement for economic crimes. A 2016 mapping of 41 countries’ corporate liability systems shows wide variations in approaches to liability and that corporate liability is a dynamic area of legal innovation and evolution.[1]

The term legal person refers to a business entity (often a corporation, but possibly other legal entities, as specified by law) that has both legal rights (e.g. the right to sue) as well as legal obligations. Because, at a public policy level, the growth and prosperity of society depends on the business community, governments must carefully tailor the extent and ways that each permitted form of business entity can be held liable.

Important design elements of corporate liability systems include jurisdiction, successor liability, related and unrelated entities as a source of liability, sanctions and mitigating factors.[1]

Poorly designed or non-existent corporate liability systems can make it impossible to enforce laws effectively and can lead to profound injustices for individuals or entities seeking accountability and redress for wrongdoing.[2]