Let's say I have $100 in assets and $10 in liabilities. The assets consist of Nike sneakers I'd like to sell; the liabilities consist of bags of trash that would cost me $30 to throw away at the dump. I'm lazy, so sell some shoes and I pay the trash man $35 to take the liabilities away.
I have put all my liabilities in one company (the trash man) and left all my assets in my company.
Now, I have a company with a few Nike assets and no liabilities. One of the pairs of shoes catches on fire and becomes a smelly, smoking liability. I sell the rest of the shoes and return the money to the shareholders, leaving the company only owning the burned shoe liability. Now all of the company's assets belong to the shareholders, and all the company has is liabilities.
It depends. If you feel that metaphor is poor let's try this:
One bag of trash magically turns into a loan that I have taken from a bank. I am obligated to repay $35 at an adjustable interest rate. Because I don't like risk, I pay another bank $45 and they take over the loan. Now I have assets and the second bank has the liability (the first bank, of course, still lists the loan as an asset).
I have put all my liabilities in one company (the trash man) and left all my assets in my company.
Now, I have a company with a few Nike assets and no liabilities. One of the pairs of shoes catches on fire and becomes a smelly, smoking liability. I sell the rest of the shoes and return the money to the shareholders, leaving the company only owning the burned shoe liability. Now all of the company's assets belong to the shareholders, and all the company has is liabilities.
Which law did I break?