Liability: Difference between revisions
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A company’s [[shares]], by way of illustration, are ''not'' [[liabilities]], but rather represent an ''ownership'' interest in the issuing company. | A company’s [[shares]], by way of illustration, are ''not'' [[liabilities]], but rather represent an ''ownership'' interest in the issuing company. | ||
===Payment of liabilities out of own funds=== | |||
You may occasionally see a covenant from an [[espievie]] to its security trustee as follows: | |||
{{quote|'''[[Payment of Liabilities]]''': at all times pay its liabilities out of its own funds or procure payment of such liabilities by other persons out of moneys owing to it.}} | |||
{{sa}} | {{sa}} | ||
Revision as of 08:14, 22 September 2023
Liability
/ˌlaɪəˈbɪlɪti/ (n.)
The value of one’s legal obligation. In financial services — indeed, generally in the arithmetic reckoning of the common law, which reduces the world to a kind of eternal ledger of debits and credits, that duty is articulated as a sum of money payable. Now, I am making this up as I go along, readers — no change there — but financial services practitioners have a notoriously loose grip of the English language, so hang it, call it a financial poet’s licence to be exact, even if that might be exactly wrong. We monetary bards[1] like to wield vocabulary with the deftness of a sturgeon. So let’s.
In the narrowest sense, a “liability” is a term of accounting art: everything that an “asset” is not, only rendered in those monochromatic, monetary terms — accountants are colour-blind: they only understand the world in dollars and cents; they perceive only the decimal code underlying the multi-hued panorama that confronts the rest of us — but this is, in its way, a useful concept to hold onto when drafting a legal contract. It distinguishes a liability from an obligation: your obligation is to provide a carbolic smoke-ball of merchantable quality; your liability is to pay £100 to a purchaser should it not work.[2]
We are close to the netherworld of jurisprudence by which we ask what is money. But let’s save that for another day.
A company’s shares, by way of illustration, are not liabilities, but rather represent an ownership interest in the issuing company.
Payment of liabilities out of own funds
You may occasionally see a covenant from an espievie to its security trustee as follows:
Payment of Liabilities: at all times pay its liabilities out of its own funds or procure payment of such liabilities by other persons out of moneys owing to it.