Comment: I'm not quite sure what your question(s) is(are), but ...

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I'm not quite sure what your question(s) is(are), but ...

... I'll take a shot. Seems like you are mixing a few concepts together and I think we should separate them out for clarity.

First off, not ALL corporations are publicly owned. MOST are privately owned. The idea of a corporation is to limit the liability of the shareholders. It is a default position in the COURTS, when lawsuits are in question.

If someone does business as ABC Supply, then they are most likely not incorporated. However, if they do business as ABC Supply, Inc., then that is YOUR notification (notification to the general public) that if you do business with them, you are agreeing to limit your liability to the assets of the corporation if you have a dispute that winds up IN COURT.

Most corporations are formed by Average Joe to do business with some protection of limited liability so that his personal assets are not at risk in the event of a business dispute that winds up in COURT.

Now, if someone wants to not only file paperwork to incorporate but ALSO file paperwork with the SEC to be a PUBLIC company, then that is a company where the general public (you and me) can buy stock through a broker (or directly with the company, in some cases).

So, most corporation are privately owned, and stock cannot be bought and sold by the general public. A small percentage of corporations file additional paperwork to become publicly owned.

Moving on, you said, "He knows that even purchasing stock in a corporation he knows is involved in illegal business, he won't be liable."

Now, THIS is where we got a problem, you and me. I think you will be hard-pressed to find a company that is soliciting investors where everybody involved KNOWS they are involved in an illegal business. If somebody wants to get investors for his moonshine business, everybody knows they have to keep it QUIET. They sure as hell are NOT going to "go public." If they did go public, the founders would have to LIE to get listed, and so the investors would NOT know they were really involved in illegal activity. If everybody did know, they would probably be a SMALL group of people, and they would use CASH, and they would NOT INCORPORATE. Why bother when you are involved in something illegal?

So, your scenario is not realistic. Now, that does not mean that NO corporate executives do things that are illegal. Remember Enron? There are former executives of Enron who went to PRISON who did dirty deeds for Enron. One committed suicide to avoid prison. But the investors didn't know the execs were cooking the books. The investors thought it was a legit utility company.

Also, you are leaving out the "investors" who short stocks. Right now, there is a hedge fund manager who is massively short Herbalife because he claims it is a pyramid scheme (and, therefore illegal). But guess what? The regulators, who certainly know the allegations -- he has been VERY public about it -- are doing nothing, or they disagree that it is illegal.

If he is right, the company will eventually fail, and he will make a lot of money. But there are other investors who think he is wrong and they are buying the stock. The stock price is HIGHER since he started shorting and went public with his accusations.

So, who is right and who is wrong? Time will tell. But this risk of higher/lower stock prices is ONLY LIMITED to those participants who want to take one side or the other. The risk (risk of the market price of stock) does NOT affect you or me. The market will flush it out. Either money will go from the longs' pockets to the shorts' pockets, or from the shorts' pockets to the longs' pockets.

That's what makes a market. There are no guarantees. But the market price risk is dealt with by the marketplace.

Now, let's say Herbalife goes bankrupt. The shorts will make huge profits. The longs will lose their entire investment. The banks who loaned money will lose their investment in the loan, and vendors who supply the company will lose anything they have tied up in it.

But that is factored in to business. Banks KNOW that some loans will go bad, and that is priced into what they charge for making loans. Same goes for suppliers. In fact, if Herbalife were to start missing payments, the suppliers would stop issuing credit, and would insist on cash on delivery to limit their risk.

The marketplace works it out. To the extent that it "spreads," all those potential losses are factored into the cost of doing business, generally.

Now, if you were to ADD to the overall risks the idea that investors would be 100% liable, then the markets would DRY UP. Investors would NOT invest and risk everything.

The examples you cite of the gold miners are people who were working for THEMSELVES going out to pan for gold. There were no creditors or customers. You paid CASH for tools, paid CASH to stake a claim, and went out digging. If you came up with some gold, you sold it for CASH, hoping for a profit.

The bigger operations that hired people and borrowed from banks and paid for big claims, those were companies that incorporated or used business trusts. In fact, there are collectors today who buy and sell old gold mining company stock certificates as collectable items (the companies went bankrupt long ago, but there is value to collectors who think they are cool). Those are STOCK certificates of CORPORATIONS who were in the MINING business in the 19th Century.

I hope that answers your question(s).