Corporations are not people, contrary to popular belief. They are legal constructs designed to bundle up real and intangible property and the responsibilities that go with ownership of the bundle. This allows you and me to own a share of General Motors and not be responsible for its debts and liabilities if the enterprise fails.
But what happens if someone games the system? The limitations on liability and the opportunity to escape from responsibility provide an opportunity that has value. Let’s say you own a fleet of taxi cabs. Insurance is expensive, and your drivers, good as they are, can’t avoid accidents with personal injury claims. So you incorporate each of your cabs, buy the minimum insurance that’s allowed, and if there’s an accident? Well, that cab is the only thing of value in the corporation after the insurance pays its limit. The corporate veil protects you as the shareowner.
Now suppose a bunch of wealthy oil barons are worried about future liabilities of their depleted oil wells. Read this.
Diversified Energy Co. buys up oil wells that other companies no longer want any part of, holding 61,100 wells as of the end of 2020, the most in the country and considerably more than oil majors like Exxon Mobil (36,900 wells) and Chevron (25,800 wells). The rate at which the company is buying up wells is worrying regulators and industry groups because states require a company to plug a well with cement after it runs dry, and some think the rate that Diversified is paying out dividends and buying up wells means that it won’t have the funds to hold up its side of the bargain once bills come. That could leave states like Ohio, Pennsylvania and West Virginia on the hook to clean up a mess that could cost billions. Many wells have methane leaks, a ton of which causes 80 times the warming over the next 20 years that a ton of carbon dioxide would.Zachary R. Mider and Rachel Adams-Heard, Bloomberg