East India Company = Incorporated by Royal Charter
https://www.icaew.com/-/media/corporate/files/technical/ethics/evolution-of-british-
business-forms.ashx?la=en
History
- Elizabeth I granted charter → first joint-stock corporation
o Investors who are granted shares in company, receiving dividends of profit
based on number of shares held for initial investment
▪ Shares/dividends not new concept – EI was shareholder in Golden
Hind (Sir Francis Drake’s ship, in which he made 5,000% return on his
initial investment)
▪ BUT first JSC of its kind, with Dutch and French following suit after
o First Limited Liability Corporation
▪ Investors had limited liability
▪ Investors granted protection from losing any more money than their
initial investments in the venture
• Royal coffers (treasury funds) covered loses/debt – modern
limited liability corporations are subject to bankruptcy
procedures – could cause creditors to lose majority/all of
money upon insolvency
- Extension of state power over company – 1773 Regulatory Act (after famine)
o Curbed chartered rights
o Parliament could appoint own appointees in governing council of Bengal so
political appointees were inserted in the governance of the company
Chartered company structure
- Share transferability and Jointly Held Stock
o Speculative trading voyages to the New World were too risky and expensive for
merchants to finance on their own.
▪ State viewed exploration/global trade as crucial to national interest
• Partnership could never raise such large capital
▪ Capital intensive – armies/forts etc
▪ Risky – war with French/Dutch
o Helped the joint stock company balance requirements for fixed capital with the
liquidity required by providers of that type of capital.
▪ A smaller firm had a lesser need for share liquidity and, where ownership
and management were joined in the same class, restrictions on share
alienation were less important.
o Shares could be sold and resold without the consent of other owners, and a
member’s death, rather than dissolving the firm, simply caused the member’s
shares to pass to his heirs.
▪ Mechanism for broadening pool of investors (218)
▪ NB – not as easy to trade shares as today as no established secondary
market
→ pioneered the modern joint stock model of financing
- Trans-national system of business admin/governance
o Series of meetings (similar to weekly board meetings)
o Shareholder voting – system more democratic than today
, o Hierarchical admin system
▪ Subsidiaries overseas managed out of regional presidencies, similar to
MNCs
- Set up on venture by venture basis
o Cargo divided among investors after each journey.
▪ In 1623 the Dutch parliament granted the Dutch East India Company
perpetual existence to avoid the need to constantly liquidate assets in
order to distribute profits.
▪ England – context of parliament taking increasing authority over foreign
trade, particularly following the Glorious Revolution in 1688.
o After the share price dropped to £39 after war with Mughal Empire, it recovered
to see it’s golden age 1730-1740
▪ Paid dividends to shareholders – reward people per share who have
invested when profit made, as with modern business
- Monopoly
o A charter would grant a company exclusive rights within a defined geographic
market, including not only the right to trade but to also establish colonies and
local authorities in new territories.
o The potential revenue streams enhanced by these monopoly powers were
necessary to attract investment in these large-scale ventures.
- East India Company = Chartered Company → developed mercantile economy
o The difference in scale of operations between the mercantile companies and the
shopkeepers and local traders is indicative of the key distinctions between the
joint stock company and partnership forms at the time.
How EIC was an imperialistic instrument
= England grew in power as EIC did, thus was involved in major geopolitical change
- Private army
o Raised soldiers in areas it took over
- Expansionism spurred war (eg China over Indian opium, native Indian revolt 1857)
o Ruthless in quest for profit
▪ Forceful seizure of land
▪ Disposure of colony rulers
▪ Extracted tax through torture of citizens
o Battle of Plassey more of a business deal than a battle
▪ Corporate gain – immediate windfall of £2.5million
▪ Strategic positioning – enabled elimination of French and Dutch
competition, acquired assets and curbed regulatory power of Indian
state
▪ Individual executives became famously wealthy
• Robert Clive gained £234,000
▪ Offset of Diwani (office of tax management) through the Mughal
Emperor outsourcing fiscal management to them
• Enabled Bengal looting – EIC could monopolise market
o Produced 2 sovereign nations
▪ India and US revolted against EIC rule → resulted in their current
political structure
• US – English Tea Act (monopoly) forced US competition out
, • India – built forts, housed private army, raised soldiers from
natives → martial rule allowed profits to be extracted easily
(opium was most profitable monopoly)
o India was an English colony until 1947, when it became
a constitutional republic
Corporate personality
Determining who can sue in cases involving unincorporated businesses (eg partnerships) has
historically proven difficult → this does not exist in relation to companies, as when it is
wronged, they can be the proper claimant as they have corporate personality
Edward Burke – called it a revolutionary force that de-stabilised the established pattern of
affairs in India
Evolution from Charter Companies to modern Company Law
= Joint account status → basis for modern company form
unincorporated joint stock company was managed as a partnership, with the key structural
difference being that firm assets were held by a trustee for the benefit of the members,
rather than jointly by the members themselves. This third-party ownership broke the
personal nature of the partnership arrangement, providing the basis for transferability of
shares. It also gave the unincorporated joint stock company a degree of separate legal
personality; the firm could sue and be sued in the name of its trustee. These features
earned the form the label ‘proto corporation’ from later scholars
Development of Joint Stock Companies
- EIC – monopoly granted that allowed labour and capital to be aggregated for the
purpose of undertaking tasks that would be too large for any one person
o It was not until 1692 that private trading was finally forbidden to members.
Until this date, therefore, the constitution of the East India Co. represents a
compromise between a regulated company, formed primarily for the
government of a particular trade, and the more modern type of company,
designed to trade for the profits of its members.
Bubble Act 1720 directly broke the trajectory path that chartered corporations had to the
modern corporation (clearer distinction between incorporated and unincorporated
companies)
- By early 1720 unincorporated joint stock companies, many founded with fraudulent
intent, were springing up to take advantage of the market frenzy caused by the
South Sea Company.
- Parliament had asserted its right to allow formation of a joint stock company with
tradeable shares and, in the name of protecting the public from the potential abuse
of the corporate form, would carefully guard its prerogative for decades to come.
- British business continued to grow and thrive as the Industrial Revolution dawned
but it was only until the scale of economic growth demanded its widespread
adaptation that parliament would begin to loosen its grip on the joint stock company
form.
, Industrial Revolution → impacts ongoing shape of modern company as it emerges
= The boom in market speculation during 1824 and 1825 led to demand for reform of
company law. In 1825 Peter Moore, a company promoter and MP, introduced a Bill
repealing the Bubble Act.
- Incorporated forms of organisations
o Charter
o Private acts of parliament
- Private forms of business organisations → form modern capitalism
o Partnerships developed
▪ With constraints on development of the joint stock company, the
partnership became the favoured form for many activities, despite its
limitations outlined above. Its use in the slave trade (an important
part of the economy until its abolition became a reality) illustrates
some of its strengths as a form
• Used for slave trade and other less speculative adventures
than the EIC
• Limitation of liability was not deemed as necessary where
partnerships were based on close, personal relationships
where partners were bound by more than business concerns.
• partnership form also allowed owners to maintain tight
control over operations, as many industrialists believed that
factories could only be managed by supervisors who had a
stake in the business.
• As with the slave trade, the capital requirements of early
industrialists were more limited, labour and materials were
cheap and the sale of goods provided enough revenue for
growth. Many industrialists neither needed the benefit of
tradeable shares nor were willing to yield operational control
in order to achieve it
o Deed of settlement companies
Joseph v Preber → repeal of Bubble Act
- Joint Stock Companies Act 1844 – company could be incorporated by registration
without obtaining a Royal Charter or sanction by statute. It marked perhaps the first
time in English legislative history that parliament enabled a new business form,
rather than proscribed it.
- The business entity created was an extension of the partnership form, incorporating
many of the features sought by reformers while adding requirements that would
protect the ‘public interest’
- Tried to fill void left by repeal of Bubble Act (need for alternative business form that
had clear restrictions and form)
Consequent legislation
https://www.icaew.com/-/media/corporate/files/technical/ethics/evolution-of-british-
business-forms.ashx?la=en
History
- Elizabeth I granted charter → first joint-stock corporation
o Investors who are granted shares in company, receiving dividends of profit
based on number of shares held for initial investment
▪ Shares/dividends not new concept – EI was shareholder in Golden
Hind (Sir Francis Drake’s ship, in which he made 5,000% return on his
initial investment)
▪ BUT first JSC of its kind, with Dutch and French following suit after
o First Limited Liability Corporation
▪ Investors had limited liability
▪ Investors granted protection from losing any more money than their
initial investments in the venture
• Royal coffers (treasury funds) covered loses/debt – modern
limited liability corporations are subject to bankruptcy
procedures – could cause creditors to lose majority/all of
money upon insolvency
- Extension of state power over company – 1773 Regulatory Act (after famine)
o Curbed chartered rights
o Parliament could appoint own appointees in governing council of Bengal so
political appointees were inserted in the governance of the company
Chartered company structure
- Share transferability and Jointly Held Stock
o Speculative trading voyages to the New World were too risky and expensive for
merchants to finance on their own.
▪ State viewed exploration/global trade as crucial to national interest
• Partnership could never raise such large capital
▪ Capital intensive – armies/forts etc
▪ Risky – war with French/Dutch
o Helped the joint stock company balance requirements for fixed capital with the
liquidity required by providers of that type of capital.
▪ A smaller firm had a lesser need for share liquidity and, where ownership
and management were joined in the same class, restrictions on share
alienation were less important.
o Shares could be sold and resold without the consent of other owners, and a
member’s death, rather than dissolving the firm, simply caused the member’s
shares to pass to his heirs.
▪ Mechanism for broadening pool of investors (218)
▪ NB – not as easy to trade shares as today as no established secondary
market
→ pioneered the modern joint stock model of financing
- Trans-national system of business admin/governance
o Series of meetings (similar to weekly board meetings)
o Shareholder voting – system more democratic than today
, o Hierarchical admin system
▪ Subsidiaries overseas managed out of regional presidencies, similar to
MNCs
- Set up on venture by venture basis
o Cargo divided among investors after each journey.
▪ In 1623 the Dutch parliament granted the Dutch East India Company
perpetual existence to avoid the need to constantly liquidate assets in
order to distribute profits.
▪ England – context of parliament taking increasing authority over foreign
trade, particularly following the Glorious Revolution in 1688.
o After the share price dropped to £39 after war with Mughal Empire, it recovered
to see it’s golden age 1730-1740
▪ Paid dividends to shareholders – reward people per share who have
invested when profit made, as with modern business
- Monopoly
o A charter would grant a company exclusive rights within a defined geographic
market, including not only the right to trade but to also establish colonies and
local authorities in new territories.
o The potential revenue streams enhanced by these monopoly powers were
necessary to attract investment in these large-scale ventures.
- East India Company = Chartered Company → developed mercantile economy
o The difference in scale of operations between the mercantile companies and the
shopkeepers and local traders is indicative of the key distinctions between the
joint stock company and partnership forms at the time.
How EIC was an imperialistic instrument
= England grew in power as EIC did, thus was involved in major geopolitical change
- Private army
o Raised soldiers in areas it took over
- Expansionism spurred war (eg China over Indian opium, native Indian revolt 1857)
o Ruthless in quest for profit
▪ Forceful seizure of land
▪ Disposure of colony rulers
▪ Extracted tax through torture of citizens
o Battle of Plassey more of a business deal than a battle
▪ Corporate gain – immediate windfall of £2.5million
▪ Strategic positioning – enabled elimination of French and Dutch
competition, acquired assets and curbed regulatory power of Indian
state
▪ Individual executives became famously wealthy
• Robert Clive gained £234,000
▪ Offset of Diwani (office of tax management) through the Mughal
Emperor outsourcing fiscal management to them
• Enabled Bengal looting – EIC could monopolise market
o Produced 2 sovereign nations
▪ India and US revolted against EIC rule → resulted in their current
political structure
• US – English Tea Act (monopoly) forced US competition out
, • India – built forts, housed private army, raised soldiers from
natives → martial rule allowed profits to be extracted easily
(opium was most profitable monopoly)
o India was an English colony until 1947, when it became
a constitutional republic
Corporate personality
Determining who can sue in cases involving unincorporated businesses (eg partnerships) has
historically proven difficult → this does not exist in relation to companies, as when it is
wronged, they can be the proper claimant as they have corporate personality
Edward Burke – called it a revolutionary force that de-stabilised the established pattern of
affairs in India
Evolution from Charter Companies to modern Company Law
= Joint account status → basis for modern company form
unincorporated joint stock company was managed as a partnership, with the key structural
difference being that firm assets were held by a trustee for the benefit of the members,
rather than jointly by the members themselves. This third-party ownership broke the
personal nature of the partnership arrangement, providing the basis for transferability of
shares. It also gave the unincorporated joint stock company a degree of separate legal
personality; the firm could sue and be sued in the name of its trustee. These features
earned the form the label ‘proto corporation’ from later scholars
Development of Joint Stock Companies
- EIC – monopoly granted that allowed labour and capital to be aggregated for the
purpose of undertaking tasks that would be too large for any one person
o It was not until 1692 that private trading was finally forbidden to members.
Until this date, therefore, the constitution of the East India Co. represents a
compromise between a regulated company, formed primarily for the
government of a particular trade, and the more modern type of company,
designed to trade for the profits of its members.
Bubble Act 1720 directly broke the trajectory path that chartered corporations had to the
modern corporation (clearer distinction between incorporated and unincorporated
companies)
- By early 1720 unincorporated joint stock companies, many founded with fraudulent
intent, were springing up to take advantage of the market frenzy caused by the
South Sea Company.
- Parliament had asserted its right to allow formation of a joint stock company with
tradeable shares and, in the name of protecting the public from the potential abuse
of the corporate form, would carefully guard its prerogative for decades to come.
- British business continued to grow and thrive as the Industrial Revolution dawned
but it was only until the scale of economic growth demanded its widespread
adaptation that parliament would begin to loosen its grip on the joint stock company
form.
, Industrial Revolution → impacts ongoing shape of modern company as it emerges
= The boom in market speculation during 1824 and 1825 led to demand for reform of
company law. In 1825 Peter Moore, a company promoter and MP, introduced a Bill
repealing the Bubble Act.
- Incorporated forms of organisations
o Charter
o Private acts of parliament
- Private forms of business organisations → form modern capitalism
o Partnerships developed
▪ With constraints on development of the joint stock company, the
partnership became the favoured form for many activities, despite its
limitations outlined above. Its use in the slave trade (an important
part of the economy until its abolition became a reality) illustrates
some of its strengths as a form
• Used for slave trade and other less speculative adventures
than the EIC
• Limitation of liability was not deemed as necessary where
partnerships were based on close, personal relationships
where partners were bound by more than business concerns.
• partnership form also allowed owners to maintain tight
control over operations, as many industrialists believed that
factories could only be managed by supervisors who had a
stake in the business.
• As with the slave trade, the capital requirements of early
industrialists were more limited, labour and materials were
cheap and the sale of goods provided enough revenue for
growth. Many industrialists neither needed the benefit of
tradeable shares nor were willing to yield operational control
in order to achieve it
o Deed of settlement companies
Joseph v Preber → repeal of Bubble Act
- Joint Stock Companies Act 1844 – company could be incorporated by registration
without obtaining a Royal Charter or sanction by statute. It marked perhaps the first
time in English legislative history that parliament enabled a new business form,
rather than proscribed it.
- The business entity created was an extension of the partnership form, incorporating
many of the features sought by reformers while adding requirements that would
protect the ‘public interest’
- Tried to fill void left by repeal of Bubble Act (need for alternative business form that
had clear restrictions and form)
Consequent legislation
