Freedom of Incorporation

Text IV.

Negative opinion regarding corporations persisted through to the turn of the eighteenth century, although in England chartered companies made significant inroads in the insurance and transportation industries due to the need to raise large amounts of capital and to diversify risk. Moreover, quasi-corporations existed in shipping and tin mining. These sectors were under the special jurisdiction of admiralty and stannary courts. Both court systems operated under the principle of customary law, where legal principles adapted to suit business practice instead of conforming to a set of abstract legal principles, as was characteristic of both civil and natural law.

In contrast, under the common law, many corporations had to constitute more circuitously, given the difficulty of obtaining a charter. Through the trust device, promoters hoped to establish joint-stock firms having transferable shares and the ability to sue and be sued. However, this device could not be used to attain limited liability. Beginning in the last quarter of the eighteenth century, such unincorporated companies appeared in the silk, wool, food, and beer industries, but were notably absent in the cotton and metal industries. In this period the number of companies increased five-fold, and many of them were unincorporated.

The growth in unincorporated businesses occurred despite their illegality under the Bubble Act (1720). This act had been dormant but was resurrected in a number of court rulings in the period 1808 to 1812. The legal threat to the unincorporated companies dissipated only when the act was repealed in 1825. Under a strict interpretation of the common law they were still illegal, but a business-friendly regime at both the chancery- and common-law courts had ruled that such companies were in the public interest. However, continued uncertainty prompted Parliament to enact company legislation that had as its main tenet freedom of incorporation. A chief concern focused on whether freedom to incorporate should be constrained to guard against overpromotion and stock speculation. However, lessons from incorporation experiences in the United States and France ultimately resulted in the English Companies Act of 1844 granting freedom of incorporation, and leaving investors to protect themselves. However, corporations were required to accurately report half-yearly earnings to stockholders.

Freedom to incorporate with limited liability in Britain did not come until 1856. Free incorporation with limited liability soon followed in France, and by 1860 most U.S. states had adopted it. Finally, by the last quarter of the nineteenth century many continental European nations had followed suit, ushering in the modern corporate era.

Дата добавления: 2017-01-14