A corporation is simply a contractual agreement between people. If a husband and wife share ownership of a house, the government cannot search or seize the house. If a hundred shareholders share ownership of a factory, they are still protected from the government searching or seizing the factory.

Perhaps the judge in the Santa Clara case made the right decision for the wrong reason. I do think it's incorrect to view the corporation as a "person". A corporation is a contractual agreement concerning shared property. A corporation does not have rights, the people who own it have rights (which in practice is the same thing).

A corporation has legal "personhood" independent of its managers and stockholders, in the sense that if the corporation becomes insolvent, its creditors can only get at the assets of the corporation itself. You can't get this kind of protection with contracts alone, which is why a new legal structure was created for corporations.

Limited liability is simply a matter of contract between the lender and the owners of the corporate structure. When a bank lends money to an LLC, the contract is that the bank can only seize the assets of the corporate structure, not of the owners. If the bank does not like this deal, they can refuse to make the loan. In fact, many banks will refuse to lend to small LLC's. They will insist that the owner pledge his own assets.

Another way of thinking of it, is that equity holders hold the most junior debt. The idea that senior debt holders could come back and make the junior debt holders pay up more is ridiculous.

Now, I do think that owners (and bond holders) should in some cases be liable for third party torts and criminal activities of the company. I don't know what the actual law is about this issue. If there is never any liability, that's a mistake. But I doubt that's the case.

I agree with you, and unfortunately I must tell you that liability is indeed limited or erased. So, yes, it's a mistake.