Lowering the minimum-capital requirement for companies with limited liability. An analysis in terms of commercial law
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One recurrent issue in Hungarian commercial law is whether the minimum-capital requirement for companies with limited liability should be reduced, or even abolished. The study examines the effect that would have on the propensity of such firms to take risks (caution). It seeks to prove that the incentive effect of capital reduction (and thereby the limitation of liability) differs depending on whether (1) the decision-maker is risk-neutral or risk-avoiding, (2) what liability regulation (strict or negligence-based) is applied in cases of damages, and (3) what relationship pertains between the managers and the owners of the firm.
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