mine, dated June 16, 1288 The word "corporation" derives from
corpus, the
Latin word for body, or a "body of people". By the time of
Justinian (reigned 527–565),
Roman law recognized a range of corporate entities under the names
Universitas,
corpus or
collegium. Following the passage of the
Lex Julia during the reign of
Julius Caesar as
Consul and
Dictator of the
Roman Republic (49–44 BC), and their reaffirmation during the reign of
Caesar Augustus as
Princeps senatus and
Imperator of the
Roman Army (27 BC–14 AD),
collegia required the approval of the
Roman Senate or the
Emperor in order to be
authorized as legal bodies. These included the state itself (the
Populus Romanus), municipalities, and such private associations as sponsors of a
religious cult,
burial clubs, political groups, and guilds of craftsmen or traders. Such bodies commonly had the right to own property and make contracts, to receive gifts and legacies, to sue and be sued, and, in general, to perform legal acts through representatives. Private associations were granted designated privileges and liberties by the emperor. The concept of the corporation was revived in the
Middle Ages with the recovery and annotation of Justinian's by the
glossators and their successors the
commentators in the 11th–14th centuries. Particularly important in this respect were the Italian jurists
Bartolus de Saxoferrato and
Baldus de Ubaldis, the latter of whom connected the corporation to the metaphor of the
body politic to describe the
state. Early entities which carried on business and were the subjects of legal rights included the
collegium of
ancient Rome and the
sreni of the
Maurya Empire in ancient India. In medieval Europe, churches became incorporated, as did local governments, such as 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 Europe, traders would do business through
common law constructs, such as
partnerships. 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.
Mercantilism Dutch and English chartered companies, such as the
Dutch East India Company (also known by its Dutch initials: VOC) and the
Hudson's Bay Company, were created to lead the colonial ventures of European nations in the 17th century. Acting under a charter sanctioned by the Dutch government, the Dutch East India Company defeated
Portuguese forces and established itself in the
Moluccan Islands in order to profit from the
European 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 were also explicitly granted
limited liability in the company's royal charter. In England, 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
East India Company of
London.
Queen Elizabeth I granted it the exclusive right to trade with all countries to the east of the
Cape of Good Hope. Some corporations at this time would act on the government's behalf, bringing in revenue from its exploits abroad. Subsequently, the company became
increasingly integrated with English and later British military and colonial policy, just as most corporations were essentially dependent on the
Royal Navy's ability to control trade routes. Labeled by both contemporaries and historians as "the grandest society of merchants in the universe", the English East India Company would come to symbolize the dazzlingly rich potential of the corporation, as well as new methods of business that could be both brutal and exploitative. On 31 December 1600, Queen Elizabeth I granted the company a 15-year monopoly on trade to and from the
East Indies and
Africa. By 1711, shareholders in the East India Company were earning a
return on their investment of almost 150 per cent. Subsequent stock offerings demonstrated just how lucrative the company had become. Its first stock offering in 1713–1716 raised £418,000, and its second in 1717–1722 raised £1.6 million. A similar
chartered company, 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 the Spanish Succession, which gave
Great Britain an
asiento 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 Britain, 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 British 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 £1,000 to under £100. As bankruptcies and recriminations ricocheted through government and high society, the mood against corporations and errant directors was bitter. 's stock prices. The rapid inflation of the stock value in the 1710s led to the
Bubble Act 1720, which restricted the establishment of companies without a
royal charter. In the late 18th century,
Stewart Kyd, the author of the first treatise on
corporate law in English, defined a corporation as:
Development of modern company law 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 governmental directions. Smith wrote in his 1776 work
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.
Deregulation The British
Bubble Act 1720's prohibition on establishing companies remained in force until its repeal in 1825. By this point, the
Industrial Revolution had gathered pace, pressing for legal change to facilitate business activity. The repeal was the beginning of a 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" were undercapitalized ventures promising no hope of success except for richly paid promoters. The process of
incorporation was possible only through a
royal charter or a
private act and was limited, owing to Parliament's jealous protection of the privileges and advantages thereby granted. As a result, many businesses came to be operated as
unincorporated associations with possibly thousands of members. Any consequent
litigation had to be carried out in the joint names of all the members and was almost impossibly cumbersome. Though Parliament would sometimes grant a private act to allow an individual to represent the whole in legal proceedings, this was a narrow and necessarily costly expedient, allowed only to established companies. Then, in 1843,
William Gladstone became the chairman of a Parliamentary Committee on Joint Stock Companies, which led to the
Joint Stock Companies Act 1844, regarded as the first modern piece of company law. The Act created the
Registrar of Joint Stock Companies, empowered to register companies by a two-stage process. The first, provisional, stage cost £5 and did not confer corporate status, which arose after completing the second stage for another £5. For the first time in history, 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.
Limited liability However, there was still no limited liability and company members could still be held responsible for unlimited losses by the company. The next, crucial development, then, was the
Limited Liability Act 1855, passed at the behest of the then Vice President of the Board of Trade,
Robert Lowe. This allowed investors to limit their liability in the event of business failure to the amount they invested in the company –
shareholders were still liable directly to
creditors, but just for the unpaid portion of their
shares. (The principle that shareholders are liable to the corporation had been introduced in the Joint Stock Companies Act 1844.) The 1855 Act allowed limited liability to companies of more than 25 members (shareholders).
Insurance companies were excluded from the act, though it was standard practice for insurance contracts to exclude action against individual members. Limited liability for insurance companies was allowed by the
Companies Act 1862. This prompted the English periodical
The Economist to write in 1855 that "never, perhaps, was a change so vehemently and generally demanded, of which the importance was so much overrated." The major error of this judgment was recognised by the same magazine more than 70 years later, when it claimed that, "[t]he economic historian of the future... may be inclined to assign to the nameless inventor of the principle of limited liability, as applied to trade corporations, a place of honour with
Watt and
Stephenson, and other pioneers of the Industrial Revolution. " These two features – a simple registration procedure and limited liability – were subsequently codified into the landmark 1856
Joint Stock Companies Act. This was subsequently consolidated with a number of other statutes in the Companies Act 1862, which remained in force for the rest of the century, up to and including the time of the decision in
Salomon v A Salomon & Co Ltd. The legislation quickly led to a railway boom, resulting in a surge in the formation of companies. However, in the later nineteenth century, a period of depression set in, causing many of these companies to collapse and become insolvent. Strong academic, legislative, and judicial opinions emerged, opposing the notion that businessmen could escape accountability for their role in the failing businesses.
Further developments was the leading expert on partnerships and company law in the
Salomon v. Salomon & Co. case. The landmark case confirmed the
distinct corporate identity of the company. In 1892,
Germany introduced the with a separate
legal personality and limited liability even if all the shares of the company were held by only one person. This inspired other countries to introduce corporations of this kind. The last significant development in the history of companies was the 1897 decision of the House of Lords in
Salomon v. Salomon & Co., where the House of Lords confirmed the separate legal personality of the company, and that the liabilities of the company were separate and distinct from those of its owners. In the
United States, forming a corporation usually required an act of legislation until the late 19th century. Many private firms, such as
Carnegie's steel company and
Rockefeller's
Standard Oil, avoided the corporate model for this reason (as a
trust). State governments began to adopt more permissive corporate laws from the early 19th century, although these were all restrictive in design, often with the intention of preventing corporations from gaining too much wealth and power. In 1896,
New Jersey was the first state to adopt an "enabling" corporate law, with the goal of attracting more business to the state. In 1899, Delaware followed New Jersey's lead by enacting an enabling corporate statute. However, Delaware only emerged as the leading corporate state after the enabling provisions of the 1896 New Jersey corporate law were repealed in 1913. The end of the 19th century saw the emergence of
holding companies and corporate
mergers creating larger corporations with dispersed shareholders. Countries began enacting
antitrust laws to prevent anti-competitive practices and corporations were granted more legal rights and protections. The 20th century witnessed a proliferation of laws allowing for the creation of corporations through registration worldwide. These laws played a significant role in driving economic booms in many countries both before and after World War I. Another major post World War I shift was toward the development of
conglomerates, in which large corporations purchased smaller corporations to expand their industrial base. Starting in the 1980s, many countries with large state-owned corporations began moving toward
privatization, which involved selling publicly owned (or 'nationalized') services and enterprises to corporations.
Deregulation aimed at reducing the regulation of corporate activity, often accompanied privatization as part of a laissez-faire policy. == Ownership and control ==