History of companies
Encyclopedia
The history of companies stretches back to Roman times, and deals principally with associations of people
formed to run a business
, but also for charitable or leisure purposes. A corporation
is one kind of company
, which means an entity that has separate legal personality from the people who carry out its activities or have rights to its property. Originally, corporations were solely able to be established through an act of the state, for example through royal charter
or an act of Parliament
.
It was only in the mid nineteenth century, the first being through the Joint Stock Companies Act 1856
in the United Kingdom
, that private individuals could through a simple registration procedure be considered to have established a corporation with limited liability
. Companies today dominate economic life in all developed countries and in the global economy.
The word "corporation" derives from corpus, the Latin
word for body. Entities which carried on business and were the subjects of legal rights were found in ancient Rome, and the Maurya Empire
in ancient India. In medieval Europe, churches became incorporated, as did local governments, such as the Pope
and the City of London Corporation. The point was that the incorporation would survive longer than the lives of any particular member, existing in perpetuity. The alleged oldest commercial corporation in the world, the Stora Kopparberg mining community in Falun
, Sweden
, obtained a charter
from King Magnus Eriksson in 1347.
In medieval times traders would do business through common law
constructs, such as partnership
s. Whenever people acted together with a view to profit, the law deemed that a partnership arose. Early guilds and livery companies were also often involved in the regulation of competition
between traders.
or the Hudson's Bay Company
, and these corporations came to play a large part in the history of colonialism
and mercantilism
. Acting under a charter sanctioned by the Dutch government, the Vereenigde Oost-Indische Compagnie
(VOC), or the Dutch East India Company, defeated Portuguese
forces and established itself in the Moluccan Islands in order to profit from the Europe
an demand for spices. Investors in the VOC were issued paper certificates as proof of share ownership, and were able to trade their shares on the original Amsterdam
stock exchange. Shareholders are also explicitly granted limited liability
in the company's royal charter.
As England sought to build a mercantile
Empire
, the government created corporations under a Royal Charter
or an Act of Parliament
with the grant of a monopoly
over a specified territory. The best known example, established in 1600, was the British East India Company
. Queen Elizabeth I granted it the exclusive right to trade with all countries to the east of the Cape of Good Hope
. Corporations at this time would essentially act on the government's behalf, bringing in revenue from its exploits abroad. Subsequently the Company became increasingly integrated
with British military and colonial policy, just as most UK corporations were essentially dependent on the British navy's ability to control trade routes.
, the South Sea Company, was established in 1711 to trade in the Spanish South American colonies, but met with less success. The South Sea Company's monopoly rights were supposedly backed by the Treaty of Utrecht
, signed in 1713 as a settlement following the War of Spanish Succession, which gave the United Kingdom an assiento to trade in the region for thirty years. In fact the Spanish remained hostile and let only one ship a year enter. Unaware of the problems, investors in the UK, enticed by extravagant promises of profit from company promoters bought thousands of shares. By 1717, the South Sea Company was so wealthy (still having done no real business) that it assumed the public debt of the UK government. This accelerated the inflation of the share price further, as did the Bubble Act 1720, which (possibly with the motive of protecting the South Sea Company from competition) prohibited the establishment of any companies without a Royal Charter. The share price rose so rapidly that people began buying shares merely in order to sell them at a higher price, which in turn led to higher share prices. This was the first speculative bubble the country had seen, but by the end of 1720, the bubble had "burst", and the share price sank from £1000 to under £100. As bankruptcies and recriminations ricocheted through government and high society, the mood against corporations, and errant directors, was bitter.
Stewart Kyd, the author of the first treatise on corporate law
in English, defined a corporation as,
Due to the late 18th century abandonment of mercantilist economic theory and the rise of classical liberalism
and laissez-faire
economic theory due to a revolution in economics
led by Adam Smith
and other economists, corporations transitioned from being government
or guild
affiliated entities to being public and private economic entities free of government direction. In 1776, Adam Smith
wrote in the Wealth of Nations that mass corporate activity could not match private entrepreneurship, because people in charge of others' money would not exercise as much care as they would with their own.
in 1791, the right to free registration for all private companies was proclaimed. There was a boom in registrations, but this was followed by a bust in 1793. The law was reversed until 1796 when the principle of free incorporation was established again.
The law was consolidated in Napoleon's Code de commerce of 1807 using a concession system. While previously public companies with special privileges were created by a special act of the state, the Code allowed the companies to be formed according to general company law rules. Specific state permission was still required. Article 33 recognised limited liability
for members. The Code de commerce was applicable outside France in Baden
and the Prussian Rhine province, and it came to serve as a model for all later European public company statutes. The first German public company statute was the Prussian Act of 1843, five years after the Prussian Act on railway enterprises of 1838. Under the Loi sur les Sociétés of 1867 France adopted a system for free registration of companies.
(société en commandite in France) was the typical form of business organisation. A "KG" had at least one member with unlimited liability, but other investors' liability is limited to their contribution. A special concession was not required for setting up this company. In 1861 the Allgemeines Deutsches Handelsgesetzbuch or the General Commercial Code for all of Germany, as well as Austria, was enacted, which devoted a section to joint stock companies. This allowed incorporation with limited liability. Companies would be constituted with a single board of directors
, though they had the option of a two tiered board system, involving shareholders appointing a supervisory board, which could in turn elected the management board.
There were updates to the Handelsgesetzbuch in the "Aktiennovelle von 1870" (New Company Act 1870), and again in 1884. The 1884 reform mandated that companies have a two-tier board, with the justification that free registration rather than a system of state concession, meant a supervisory board was needed to take over the state's monitoring role. The members of the supervisory board were not allowed to serve on the management board. However, shareholders could still directly elect management board members if they so wished. Further reforms to the Handelsgesetzbuch in 1897, but without changing the basic structure.
had gathered pace, pressing for legal change to facilitate business activity. The Bubble Companies, etc. Act 1825 was the beginning of gradual lifting on restrictions, though business ventures such as those chronicled by Charles Dickens
in Martin Chuzzlewit
under primitive companies legislation were often scams. Without cohesive regulation, proverbial operations like the "Anglo-Bengalee Disinterested Loan and Life Assurance Company" would be undercapitalised ventures promising no hope of success except for richly paid promoters. Then in 1843, William Gladstone took chairmanship of a Parliamentary Committee on Joint Stock Companies, which led to the Joint Stock Companies Act 1844
. For the first time it was possible for ordinary people through a simple registration procedure to incorporate. The advantage of establishing a company as a separate legal person was mainly administrative, as a unified entity under which the rights and duties of all investors and managers could be channeled.
The most important development, was the Limited Liability Act 1855
, which allowed investors to limit their liability in the event of business failure to the amount they invested in the company. These two features - a simple registration procedure and limited liability - were subsequently codified in the first modern company law Act, the Joint Stock Companies Act 1856
. This was subsequently consolidated with a number of other statutes in the Companies Act 1862
, which remained in force for the late century, up to and including the time of the decision in Salomon v A Salomon & Co Ltd.
Corporate charters remained regulated by the states. Forming a corporation usually required an act of legislature. Investors generally had to be given an equal say in corporate governance, and corporations were required to comply with the purposes expressed in their charters. (Andrew Carnegie
formed his steel operation as a limited partnership
, and John D. Rockefeller
set up Standard Oil
as a trust
). Eventually, state governments started to have more permissive corporate laws. New Jersey
was the first state to adopt an "enabling" corporate law, with the goal of attracting more business to the state. Delaware’s first corporation law was enacted in 1883.
In 1890 Congress passes the Sherman Antitrust Act
, which criminalised cartels that acted in restraint of trade
. While case law developed, and eventually began cracking down on the normal practices of businesses who cooperated or colluded with one another, corporations could not acquire stock in one another's businesses. However in 1898 when New Jersey changed its law to allow this. In 1899 Delaware mirrored this, saying that corporations could acquire stock in other corporations registered in Delaware and exercise all rights. This made Delaware increasingly an attactive places for businesses to incorporate holding companies, through which they could retain control over large operations without sanction under the Sherman Act. As antitrust law continued to tighten, companies integrated through mergers fully.
Limited liability was a matter of state law, and in Delaware up until 1967, it was left to the certificate of incorporation to stipulate “whether the private property of the stockholders... shall be subject to the payment of corporate debts, and if so, to what extent.” In California, limited liability was recognised as late as 1931.
, and the abandonment of mercantilism
, corporations increasingly became public and private entities free from government control. The 20th century saw a rise of corporation law across the world.
Germany
Under the Nazi government of Adolf Hitler
companies were made considerably less democratic in a reform of 1937. From then, shareholders could not elect managers directly, and managers could only be removed "for an important reason", directors would serve five year terms, and were under a duty to serve the Gemeinwohl or "general good", rather than prior understanding of the company as its employees and shareholders.
, the selling of publicly owned services and enterprises to private individuals and corporations. Deregulation
, reducing the regulation of corporate activity, has often historically accompanied privatization and is part of laissez-faire
policy. Another major postwar shift was toward the development of conglomerate
s, in which large corporations purchased smaller corporations to expand their industrial base. Japanese firms developed a horizontal conglomeration model, the keiretsu
, which was later duplicated in other countries as well.
People
People is a plurality of human beings or other beings possessing enough qualities constituting personhood. It has two usages:* as the plural of person or a group of people People is a plurality of human beings or other beings possessing enough qualities constituting personhood. It has two usages:*...
formed to run a business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
, but also for charitable or leisure purposes. A corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
is one kind of company
Company
A company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be...
, which means an entity that has separate legal personality from the people who carry out its activities or have rights to its property. Originally, corporations were solely able to be established through an act of the state, for example through royal charter
Royal Charter
A royal charter is a formal document issued by a monarch as letters patent, granting a right or power to an individual or a body corporate. They were, and are still, used to establish significant organizations such as cities or universities. Charters should be distinguished from warrants and...
or an act of Parliament
Act of Parliament
An Act of Parliament is a statute enacted as primary legislation by a national or sub-national parliament. In the Republic of Ireland the term Act of the Oireachtas is used, and in the United States the term Act of Congress is used.In Commonwealth countries, the term is used both in a narrow...
.
It was only in the mid nineteenth century, the first being through the Joint Stock Companies Act 1856
Joint Stock Companies Act 1856
The Joint Stock Companies Act 1856 was a consolidating statute, recognised as the founding piece of modern United Kingdom company law legislation.-Overview:...
in the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
, that private individuals could through a simple registration procedure be considered to have established a corporation with limited liability
Limited liability
Limited liability is a concept where by a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership with limited liability. If a company with limited liability is sued, then the plaintiffs are suing the company, not its...
. Companies today dominate economic life in all developed countries and in the global economy.
Early companies
Latin
Latin is an Italic language originally spoken in Latium and Ancient Rome. It, along with most European languages, is a descendant of the ancient Proto-Indo-European language. Although it is considered a dead language, a number of scholars and members of the Christian clergy speak it fluently, and...
word for body. Entities which carried on business and were the subjects of legal rights were found in ancient Rome, and the Maurya Empire
Maurya Empire
The Maurya Empire was a geographically extensive Iron Age historical power in ancient India, ruled by the Mauryan dynasty from 321 to 185 BC...
in ancient India. In medieval Europe, churches became incorporated, as did local governments, such as the Pope
Pope
The Pope is the Bishop of Rome, a position that makes him the leader of the worldwide Catholic Church . In the Catholic Church, the Pope is regarded as the successor of Saint Peter, the Apostle...
and the City of London Corporation. The point was that the incorporation would survive longer than the lives of any particular member, existing in perpetuity. The alleged oldest commercial corporation in the world, the Stora Kopparberg mining community in Falun
Falun
Falun is a city and the seat of Falun Municipality in Dalarna County, Sweden, with 36,447 inhabitants in 2005. It is also the capital of Dalarna County...
, Sweden
Sweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....
, obtained a charter
Charter
A charter is the grant of authority or rights, stating that the granter formally recognizes the prerogative of the recipient to exercise the rights specified...
from King Magnus Eriksson in 1347.
In medieval times traders would do business through common law
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
constructs, such as partnership
Partnership
A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.Since humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace...
s. Whenever people acted together with a view to profit, the law deemed that a partnership arose. Early guilds and livery companies were also often involved in the regulation of competition
Restraint of trade
Restraint of trade is a common law doctrine relating to the enforceability of contractual restrictions on freedom to conduct business. In an old leading case of Mitchell v Reynolds Lord Smith LC said,...
between traders.
Renaissance and mercantilism
Many European nations chartered corporations to lead colonial ventures, such as the Dutch East India CompanyDutch East India Company
The Dutch East India Company was a chartered company established in 1602, when the States-General of the Netherlands granted it a 21-year monopoly to carry out colonial activities in Asia...
or the Hudson's Bay Company
Hudson's Bay Company
The Hudson's Bay Company , abbreviated HBC, or "The Bay" is the oldest commercial corporation in North America and one of the oldest in the world. A fur trading business for much of its existence, today Hudson's Bay Company owns and operates retail stores throughout Canada...
, and these corporations came to play a large part in the history of colonialism
Colonialism
Colonialism is the establishment, maintenance, acquisition and expansion of colonies in one territory by people from another territory. It is a process whereby the metropole claims sovereignty over the colony and the social structure, government, and economics of the colony are changed by...
and mercantilism
Mercantilism
Mercantilism is the economic doctrine in which government control of foreign trade is of paramount importance for ensuring the prosperity and security of the state. In particular, it demands a positive balance of trade. Mercantilism dominated Western European economic policy and discourse from...
. Acting under a charter sanctioned by the Dutch government, the Vereenigde Oost-Indische Compagnie
Dutch East India Company
The Dutch East India Company was a chartered company established in 1602, when the States-General of the Netherlands granted it a 21-year monopoly to carry out colonial activities in Asia...
(VOC), or the Dutch East India Company, defeated Portuguese
Portugal
Portugal , officially the Portuguese Republic is a country situated in southwestern Europe on the Iberian Peninsula. Portugal is the westernmost country of Europe, and is bordered by the Atlantic Ocean to the West and South and by Spain to the North and East. The Atlantic archipelagos of the...
forces and established itself in the Moluccan Islands in order to profit from the Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
an demand for spices. Investors in the VOC were issued paper certificates as proof of share ownership, and were able to trade their shares on the original Amsterdam
Amsterdam
Amsterdam is the largest city and the capital of the Netherlands. The current position of Amsterdam as capital city of the Kingdom of the Netherlands is governed by the constitution of August 24, 1815 and its successors. Amsterdam has a population of 783,364 within city limits, an urban population...
stock exchange. Shareholders are also explicitly granted limited liability
Limited liability
Limited liability is a concept where by a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership with limited liability. If a company with limited liability is sued, then the plaintiffs are suing the company, not its...
in the company's royal charter.
As England sought to build a mercantile
Mercantilism
Mercantilism is the economic doctrine in which government control of foreign trade is of paramount importance for ensuring the prosperity and security of the state. In particular, it demands a positive balance of trade. Mercantilism dominated Western European economic policy and discourse from...
Empire
British Empire
The British Empire comprised the dominions, colonies, protectorates, mandates and other territories ruled or administered by the United Kingdom. It originated with the overseas colonies and trading posts established by England in the late 16th and early 17th centuries. At its height, it was the...
, the government created corporations under a Royal Charter
Royal Charter
A royal charter is a formal document issued by a monarch as letters patent, granting a right or power to an individual or a body corporate. They were, and are still, used to establish significant organizations such as cities or universities. Charters should be distinguished from warrants and...
or an Act of Parliament
Act of Parliament
An Act of Parliament is a statute enacted as primary legislation by a national or sub-national parliament. In the Republic of Ireland the term Act of the Oireachtas is used, and in the United States the term Act of Congress is used.In Commonwealth countries, the term is used both in a narrow...
with the grant of a monopoly
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
over a specified territory. The best known example, established in 1600, was the British East India Company
British East India Company
The East India Company was an early English joint-stock company that was formed initially for pursuing trade with the East Indies, but that ended up trading mainly with the Indian subcontinent and China...
. Queen Elizabeth I granted it the exclusive right to trade with all countries to the east of the Cape of Good Hope
Cape of Good Hope
The Cape of Good Hope is a rocky headland on the Atlantic coast of the Cape Peninsula, South Africa.There is a misconception that the Cape of Good Hope is the southern tip of Africa, because it was once believed to be the dividing point between the Atlantic and Indian Oceans. In fact, the...
. Corporations at this time would essentially act on the government's behalf, bringing in revenue from its exploits abroad. Subsequently the Company became increasingly integrated
Company rule in India
Company rule in India refers to the rule or dominion of the British East India Company on the Indian subcontinent...
with British military and colonial policy, just as most UK corporations were essentially dependent on the British navy's ability to control trade routes.
- Company of Saint George, Ufficio di San Giorgio in Genoa or Casa di San Giorgio, founded in 1407 in the Republic of GenoaRepublic of GenoaThe Most Serene Republic of Genoa |Ligurian]]: Repúbrica de Zêna) was an independent state from 1005 to 1797 in Liguria on the northwestern Italian coast, as well as Corsica from 1347 to 1768, and numerous other territories throughout the Mediterranean....
- State concession theory of companies, or the "Oktroisystem" (in German)
- Case of Sutton's HospitalCase of Sutton's HospitalCase of Sutton's Hospital 77 Eng Rep 960 is an old common law case decided by Sir Edward Coke. It concerned the London Charterhouse, which was held to be a properly constituted corporation.-Facts:...
(1612) 77 ER 960
Eighteenth century
A similar chartered companyChartered company
A chartered company is an association formed by investors or shareholders for the purpose of trade, exploration and colonization.- History :...
, the South Sea Company, was established in 1711 to trade in the Spanish South American colonies, but met with less success. The South Sea Company's monopoly rights were supposedly backed by the Treaty of Utrecht
Treaty of Utrecht
The Treaty of Utrecht, which established the Peace of Utrecht, comprises a series of individual peace treaties, rather than a single document, signed by the belligerents in the War of Spanish Succession, in the Dutch city of Utrecht in March and April 1713...
, signed in 1713 as a settlement following the War of Spanish Succession, which gave the United Kingdom an assiento to trade in the region for thirty years. In fact the Spanish remained hostile and let only one ship a year enter. Unaware of the problems, investors in the UK, enticed by extravagant promises of profit from company promoters bought thousands of shares. By 1717, the South Sea Company was so wealthy (still having done no real business) that it assumed the public debt of the UK government. This accelerated the inflation of the share price further, as did the Bubble Act 1720, which (possibly with the motive of protecting the South Sea Company from competition) prohibited the establishment of any companies without a Royal Charter. The share price rose so rapidly that people began buying shares merely in order to sell them at a higher price, which in turn led to higher share prices. This was the first speculative bubble the country had seen, but by the end of 1720, the bubble had "burst", and the share price sank from £1000 to under £100. As bankruptcies and recriminations ricocheted through government and high society, the mood against corporations, and errant directors, was bitter.
Stewart Kyd, the author of the first treatise on corporate law
Corporate law
Corporate law is the study of how shareholders, directors, employees, creditors, and other stakeholders such as consumers, the community and the environment interact with one another. Corporate law is a part of a broader companies law...
in English, defined a corporation as,
"a collection of many individuals united into one body, under a special denomination, having perpetual succession under an artificial form, and vested, by policy of the law, with the capacity of acting, in several respects, as an individual, particularly of taking and granting property, of contracting obligations, and of suing and being sued, of enjoying privileges and immunities in common, and of exercising a variety of political rights, more or less extensive, according to the design of its institution, or the powers conferred upon it, either at the time of its creation, or at any subsequent period of its existence."
Due to the late 18th century abandonment of mercantilist economic theory and the rise of classical liberalism
Classical liberalism
Classical liberalism is the philosophy committed to the ideal of limited government, constitutionalism, rule of law, due process, and liberty of individuals including freedom of religion, speech, press, assembly, and free markets....
and laissez-faire
Laissez-faire
In economics, laissez-faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies....
economic theory due to a revolution in economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
led by Adam Smith
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
and other economists, corporations transitioned from being government
Government
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...
or guild
Guild
A guild is an association of craftsmen in a particular trade. The earliest types of guild were formed as confraternities of workers. They were organized in a manner something between a trade union, a cartel, and a secret society...
affiliated entities to being public and private economic entities free of government direction. In 1776, Adam Smith
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
wrote in the Wealth of Nations that mass corporate activity could not match private entrepreneurship, because people in charge of others' money would not exercise as much care as they would with their own.
- The Charitable Corporation v Sutton (1742) 26 ER 642
- Attorney General v DavyAttorney General v DavyAttorney General v Davy 26 ER 531 is a UK company law case, which establishes this small but essential point of law: the default rule is that a majority of a corporate body can determine what it does....
(1741) 2 Atk 212
Modern company law
France
In the wake of the French RevolutionFrench Revolution
The French Revolution , sometimes distinguished as the 'Great French Revolution' , was a period of radical social and political upheaval in France and Europe. The absolute monarchy that had ruled France for centuries collapsed in three years...
in 1791, the right to free registration for all private companies was proclaimed. There was a boom in registrations, but this was followed by a bust in 1793. The law was reversed until 1796 when the principle of free incorporation was established again.
The law was consolidated in Napoleon's Code de commerce of 1807 using a concession system. While previously public companies with special privileges were created by a special act of the state, the Code allowed the companies to be formed according to general company law rules. Specific state permission was still required. Article 33 recognised limited liability
Limited liability
Limited liability is a concept where by a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership with limited liability. If a company with limited liability is sued, then the plaintiffs are suing the company, not its...
for members. The Code de commerce was applicable outside France in Baden
Baden
Baden is a historical state on the east bank of the Rhine in the southwest of Germany, now the western part of the Baden-Württemberg of Germany....
and the Prussian Rhine province, and it came to serve as a model for all later European public company statutes. The first German public company statute was the Prussian Act of 1843, five years after the Prussian Act on railway enterprises of 1838. Under the Loi sur les Sociétés of 1867 France adopted a system for free registration of companies.
Germany
In Germany, through most of the 19th century the KommanditgesellschaftKommanditgesellschaft
A Kommanditgesellschaft is the German name for a limited partnership business entity and is used in German, Austrian and some other European legal systems....
(société en commandite in France) was the typical form of business organisation. A "KG" had at least one member with unlimited liability, but other investors' liability is limited to their contribution. A special concession was not required for setting up this company. In 1861 the Allgemeines Deutsches Handelsgesetzbuch or the General Commercial Code for all of Germany, as well as Austria, was enacted, which devoted a section to joint stock companies. This allowed incorporation with limited liability. Companies would be constituted with a single board of directors
Board of directors
A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...
, though they had the option of a two tiered board system, involving shareholders appointing a supervisory board, which could in turn elected the management board.
There were updates to the Handelsgesetzbuch in the "Aktiennovelle von 1870" (New Company Act 1870), and again in 1884. The 1884 reform mandated that companies have a two-tier board, with the justification that free registration rather than a system of state concession, meant a supervisory board was needed to take over the state's monitoring role. The members of the supervisory board were not allowed to serve on the management board. However, shareholders could still directly elect management board members if they so wished. Further reforms to the Handelsgesetzbuch in 1897, but without changing the basic structure.
- Preußischen Gesetz von 1843, a unified company law in PrussiaPrussiaPrussia was a German kingdom and historic state originating out of the Duchy of Prussia and the Margraviate of Brandenburg. For centuries, the House of Hohenzollern ruled Prussia, successfully expanding its size by way of an unusually well-organized and effective army. Prussia shaped the history...
- Gewerbefreiheit or economic/business freedom
United Kingdom
The UK Bubble Act 1720's prohibition on establishing companies remained in force until its repeal in 1825. By this point the Industrial RevolutionIndustrial Revolution
The Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture, manufacturing, mining, transportation, and technology had a profound effect on the social, economic and cultural conditions of the times...
had gathered pace, pressing for legal change to facilitate business activity. The Bubble Companies, etc. Act 1825 was the beginning of gradual lifting on restrictions, though business ventures such as those chronicled by Charles Dickens
Charles Dickens
Charles John Huffam Dickens was an English novelist, generally considered the greatest of the Victorian period. Dickens enjoyed a wider popularity and fame than had any previous author during his lifetime, and he remains popular, having been responsible for some of English literature's most iconic...
in Martin Chuzzlewit
Martin Chuzzlewit
The Life and Adventures of Martin Chuzzlewit is a novel by Charles Dickens, considered the last of his picaresque novels. It was originally serialized between 1843-1844. Dickens himself proclaimed Martin Chuzzlewit to be his best work, but it was one of his least popular novels...
under primitive companies legislation were often scams. Without cohesive regulation, proverbial operations like the "Anglo-Bengalee Disinterested Loan and Life Assurance Company" would be undercapitalised ventures promising no hope of success except for richly paid promoters. Then in 1843, William Gladstone took chairmanship of a Parliamentary Committee on Joint Stock Companies, which led to the Joint Stock Companies Act 1844
Joint Stock Companies Act 1844
The Joint Stock Companies Act 1844 was an Act of the Parliament of the United Kingdom that expanded access to the incorporation of joint-stock companies....
. For the first time it was possible for ordinary people through a simple registration procedure to incorporate. The advantage of establishing a company as a separate legal person was mainly administrative, as a unified entity under which the rights and duties of all investors and managers could be channeled.
The most important development, was the Limited Liability Act 1855
Limited Liability Act 1855
The Limited Liability Act 1855 was an Act of the Parliament of the United Kingdom that first allowed limited liability for corporations that could be established by the general public in the UK.-Overview:...
, which allowed investors to limit their liability in the event of business failure to the amount they invested in the company. These two features - a simple registration procedure and limited liability - were subsequently codified in the first modern company law Act, the Joint Stock Companies Act 1856
Joint Stock Companies Act 1856
The Joint Stock Companies Act 1856 was a consolidating statute, recognised as the founding piece of modern United Kingdom company law legislation.-Overview:...
. This was subsequently consolidated with a number of other statutes in the Companies Act 1862
Companies Act 1862
The Companies Act 1862 was an Act of the Parliament of the United Kingdom regulating UK company law, whose descendant is the Companies Act 2006.-Provisions:...
, which remained in force for the late century, up to and including the time of the decision in Salomon v A Salomon & Co Ltd.
United States
By the end of the eighteenth century, there were about 300 incorporated companies in the United States, most of them providing public services, and only eight manufacturing companies. New York was the first state to enact a corporate statute in 1811 and did so with a system for simple registration and limited liability. However this was only available for manufacturing companies. which was followed by New Jersey in 1816. In 1819, the U.S. Supreme Court granted corporations rights they had not previously recognized in Trustees of Dartmouth College v. Woodward. Corporate charters were deemed "inviolable," and not subject to arbitrary amendment or abolition by state governments. Until the 1830s, when more states began to enact general corporate laws, most companies were incorporated by a special bill adopted by legislature, however even until the late century many companies preferred to seek a special legislative act for incorporation to attain privileges or monopolies.Corporate charters remained regulated by the states. Forming a corporation usually required an act of legislature. Investors generally had to be given an equal say in corporate governance, and corporations were required to comply with the purposes expressed in their charters. (Andrew Carnegie
Andrew Carnegie
Andrew Carnegie was a Scottish-American industrialist, businessman, and entrepreneur who led the enormous expansion of the American steel industry in the late 19th century...
formed his steel operation as a limited partnership
Limited partnership
A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners , there are one or more limited partners . It is a partnership in which only one partner is required to be a general partner.The GPs are, in all major respects,...
, and John D. Rockefeller
John D. Rockefeller
John Davison Rockefeller was an American oil industrialist, investor, and philanthropist. He was the founder of the Standard Oil Company, which dominated the oil industry and was the first great U.S. business trust. Rockefeller revolutionized the petroleum industry and defined the structure of...
set up Standard Oil
Standard Oil
Standard Oil was a predominant American integrated oil producing, transporting, refining, and marketing company. Established in 1870 as a corporation in Ohio, it was the largest oil refiner in the world and operated as a major company trust and was one of the world's first and largest multinational...
as a trust
Trust (19th century)
A special trust or business trust is a business entity formed with intent to monopolize business, to restrain trade, or to fix prices. Trusts gained economic power in the U.S. in the late 19th and early 20th centuries. Some, but not all, were organized as trusts in the legal sense...
). Eventually, state governments started to have more permissive corporate laws. New Jersey
New Jersey
New Jersey is a state in the Northeastern and Middle Atlantic regions of the United States. , its population was 8,791,894. It is bordered on the north and east by the state of New York, on the southeast and south by the Atlantic Ocean, on the west by Pennsylvania and on the southwest by Delaware...
was the first state to adopt an "enabling" corporate law, with the goal of attracting more business to the state. Delaware’s first corporation law was enacted in 1883.
In 1890 Congress passes the Sherman Antitrust Act
Sherman Antitrust Act
The Sherman Antitrust Act requires the United States federal government to investigate and pursue trusts, companies, and organizations suspected of violating the Act. It was the first Federal statute to limit cartels and monopolies, and today still forms the basis for most antitrust litigation by...
, which criminalised cartels that acted in restraint of trade
Restraint of trade
Restraint of trade is a common law doctrine relating to the enforceability of contractual restrictions on freedom to conduct business. In an old leading case of Mitchell v Reynolds Lord Smith LC said,...
. While case law developed, and eventually began cracking down on the normal practices of businesses who cooperated or colluded with one another, corporations could not acquire stock in one another's businesses. However in 1898 when New Jersey changed its law to allow this. In 1899 Delaware mirrored this, saying that corporations could acquire stock in other corporations registered in Delaware and exercise all rights. This made Delaware increasingly an attactive places for businesses to incorporate holding companies, through which they could retain control over large operations without sanction under the Sherman Act. As antitrust law continued to tighten, companies integrated through mergers fully.
Limited liability was a matter of state law, and in Delaware up until 1967, it was left to the certificate of incorporation to stipulate “whether the private property of the stockholders... shall be subject to the payment of corporate debts, and if so, to what extent.” In California, limited liability was recognised as late as 1931.
Early twentieth century
Following formal acts of corporate law, the rise of classical liberalismClassical liberalism
Classical liberalism is the philosophy committed to the ideal of limited government, constitutionalism, rule of law, due process, and liberty of individuals including freedom of religion, speech, press, assembly, and free markets....
, and the abandonment of mercantilism
Mercantilism
Mercantilism is the economic doctrine in which government control of foreign trade is of paramount importance for ensuring the prosperity and security of the state. In particular, it demands a positive balance of trade. Mercantilism dominated Western European economic policy and discourse from...
, corporations increasingly became public and private entities free from government control. The 20th century saw a rise of corporation law across the world.
- Clayton Act of 1914
- Since 1929 Delaware required a simple majority, not qualified majority, of shareholder votes for asset mergers (sale, lease, or other disposal of any or all of the corporation’s assets)
- Celler-Kefauver Act of 1950
- Betriebsverfassungsgesetz or works councils
- History of competition lawHistory of competition lawThe history of competition law refers to attempts by governments to regulate competitive markets for goods and services, leading up to the modern competition or antitrust laws around the world today. The earliest records traces back to the efforts of Roman legislators to control price fluctuations...
Great Depression
United States- New DealNew DealThe New Deal was a series of economic programs implemented in the United States between 1933 and 1936. They were passed by the U.S. Congress during the first term of President Franklin D. Roosevelt. The programs were Roosevelt's responses to the Great Depression, and focused on what historians call...
- Securities and Exchange Act
- AA Berle and GC Means, The Modern Corporation and Private PropertyThe Modern Corporation and Private PropertyThe Modern Corporation and Private Property is a book written by Adolf Berle and Gardiner Means published in 1932. It explores the evolution of big business through a legal and economic lens, and argues that in the modern world those who legally have ownership over companies have been separated...
(1932)
Germany
Under the Nazi government of Adolf Hitler
Adolf Hitler
Adolf Hitler was an Austrian-born German politician and the leader of the National Socialist German Workers Party , commonly referred to as the Nazi Party). He was Chancellor of Germany from 1933 to 1945, and head of state from 1934 to 1945...
companies were made considerably less democratic in a reform of 1937. From then, shareholders could not elect managers directly, and managers could only be removed "for an important reason", directors would serve five year terms, and were under a duty to serve the Gemeinwohl or "general good", rather than prior understanding of the company as its employees and shareholders.
Post war
- Nationalisation
- Cohen Report and Companies Act 1948Companies Act 1948The Companies Act 1948 was an Act of the Parliament of the United Kingdom, which regulated UK company law. Its descendent is the Companies Act 2006.-Cases decided under this Act:*Scottish Co-operative Wholesale Society Ltd v Meyer...
- MitbestimmungsgesetzMitbestimmungsgesetzMitbestimmungsgesetz of 1976 is a German law which requires companies of over 2000 employees to have half the supervisory board of directors as representatives of workers.-Background:...
and Bullock Report - DGCL and Race to the bottomRace to the bottomA race to the bottom is a socio-economic concept that is argued to occur between countries as an outcome of regulatory competition, progressive taxation policies and social welfare spending...
Privatisation and deregulation
Starting in the 1980s, many countries with large state-owned corporations moved toward privatizationPrivatization
Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...
, the selling of publicly owned services and enterprises to private individuals and corporations. Deregulation
Deregulation
Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or...
, reducing the regulation of corporate activity, has often historically accompanied privatization and is part of laissez-faire
Laissez-faire
In economics, laissez-faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies....
policy. Another major postwar shift was toward the development of conglomerate
Conglomerate (company)
A conglomerate is a combination of two or more corporations engaged in entirely different businesses that fall under one corporate structure , usually involving a parent company and several subsidiaries. Often, a conglomerate is a multi-industry company...
s, in which large corporations purchased smaller corporations to expand their industrial base. Japanese firms developed a horizontal conglomeration model, the keiretsu
Keiretsu
A is a set of companies with interlocking business relationships and shareholdings. It is a type of business group. The keiretsu has maintained dominance over the Japanese economy for the greater half of the twentieth century....
, which was later duplicated in other countries as well.
- Privatisation
- Big Bang (financial markets)Big Bang (financial markets)The phrase Big Bang, used in reference to the sudden deregulation of financial markets, was coined to describe measures, including abolition of fixed commission charges and of the distinction between stockjobbers and stockbrokers on the London Stock Exchange and change from open-outcry to...
- Cadbury ReportCadbury ReportThe Cadbury Report, titled Financial Aspects of Corporate Governance, is a report of a committee chaired by Adrian Cadbury that sets out recommendations on the arrangement of company boards and accounting systems to mitigate corporate governance risks and failures. The report was published in 1992...
- Long Term Capital Management
- EnronEnronEnron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...
- Sarbanes-Oxley ActSarbanes-Oxley ActThe Sarbanes–Oxley Act of 2002 , also known as the 'Public Company Accounting Reform and Investor Protection Act' and 'Corporate and Auditing Accountability and Responsibility Act' and commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law enacted on July 30, 2002, which...
- Global financial crisis
See also
- List of oldest companies
- UK company law
- US corporate law
- CorporationCorporationA corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
- Tulip ManiaTulip maniaTulip mania or tulipomania was a period in the Dutch Golden Age during which contract prices for bulbs of the recently introduced tulip reached extraordinarily high levels and then suddenly collapsed...
- South Sea Bubble