Questionable Companies

Our previous post focused on “Admirable Companies”, or businesses formed around the idea of corporate responsibility and creating a better business environment. This post will focus on forming better business practices and highlighting companies which we consider to be questionable. They are not outright wrong, but can be abused and, in our opinion, require additional scrutiny.

Let’s move over a few states to Wyoming. They have a bit more of the ol’ U.S.A. frontier spirit than Michigan. For example, law firms there are legally allowed to help individuals form LLCs online and use WY statutory agents, such as Cloud Peak Law Group, so that their information never appears in the public record. Through choosing a company specializing in being a Wyoming registered agent, individuals can create companies away from the public eye. FYI, that link leads to a Wyoming law firm which specializes in corporate services, among other things. Their website makes it clear the primary purpose of those companies is privacy and doesn’t attempt to deter individuals who may be up to no good.

Wyoming LLC

Note, many corporate laws exist at the state, rather than the federal, level. This means states compete with another to create the most business friendly environment. As Economists, we understand that this creates, in theory, the best possible outcome, but can also lead to perverse incentives. For example, a state such as Wyoming, because of its limited population, may decide to enact laws which benefit it, but can hurt other jurisdictions.

To summarize quickly, the “benefits” include reduced corporate accountability, fewer minority shareholder rights, reduced time periods for proving transfers are fraudulent and diminished ability for society to find out who a company’s beneficial owners are. This is done in the name of reducing bureaucracy. No doubt this does reduce hurdles for many legitimate companies who don’t need additional rules.

Now, to be certain, wanting privacy in and of itself is not a bad thing. We are not against Wyoming, or the above law firm, offering corporations such privacy. We all have a fundamental right to privacy and we believe this extends to business dealings as well. What we are against, however, is what companies do when they are away from the public eye.

There are many easy examples of what can happen when a company lacks sufficient oversight. For example, look at the baby formula scandal in China. Manufacturers were looking to cut costs in any way and decided to taint the formula they were making with cheap ingredients. Whether they knew there was lead is debatable, but the point is they believed no one was looking and accordingly took risks which no reasonable citizen would ever be willing to accept as ok.

For an example nearer to home, take a look at the Deepwater Horizon disaster. Oil companies miles from shore drilling miles and miles into the ground believed no one would see what they were doing. Small mistakes and cost-cuts here and there led to one of the world’s greatest environmental disasters.

Our point here is less to shame companies and more to urge individuals to think about the consequences their actions will have. To paraphrase Neil Young, what is done in the dark will eventually come to the light. You may be able to hide behind a corporate veil, but you alone are responsible for your actions.

 

 

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