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The history of company law in the United Kingdom concerns the change and development in UK company law within the context of the history of companies, deriving from its predecessors in Roman and English law. Company law in its current form dates from the mid-nineteenth century, however other forms of business association developed long before.
In medieval times traders would typically act through private law constructs, such as partnerships. These arose at common law whenever people acted together with a view to profit. Early guilds and livery companies were also often involved in the regulation of trade among themselves.
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.
a Became the largest colonial empire in the 19th century.
b Merger of the Turkey and Venetian Companies.
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 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 supply slaves and engage in limited trade in other goods in the region for a period of thirty years. The trading started slowly and was in any case limited in extent by the terms of the assiento, [1] but it was hoped that it would lead to breaking into the traditionally closed Spanish markets in America. Investors in the UK, enticed by extravagant promises of profit from the company promoters, bought thousands of shares. By 1717, the South Sea Company was so wealthy 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.
The Bubble Act 1720s prohibition on establishing companies remained in force until 1824.
Even 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. [2] As he put it,
The directors of such companies, however, being the managers rather of other people's money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master's honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company. It is upon this account, that joint-stock companies for foreign trade have seldom been able to maintain the competition against private adventurers.
By the 1820s the Industrial Revolution had gathered pace, pressing for legal change to facilitate business activity. Restrictions were gradually lifted on ordinary people incorporating until, under the Joint Stock Companies Act 1844, it was possible 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. A series of Companies Acts up to the present Companies Act 2006 have essentially retained the same fundamental features.
Over the twentieth century, companies in the UK became the dominant organisational form of economic activity, which raised concerns about how accountable those who controlled companies were to those who invested in them. The first reforms following the Great Depression, in the Companies Act 1948, ensured that directors could be removed by shareholders with a simple majority vote.
In 1977, the government's Bullock Report proposed reform to allow employees to participate in selecting the board of directors, as was happening in across Europe, exemplified by the German Codetermination Act 1976. However the UK never implemented the reforms, and from 1979 the debate shifted.
Through the 1990s the focus in corporate governance turned toward internal control mechanisms, such as auditing, separation of the chief executive position from the chair, and remuneration committees to place some check on excessive executive pay. These rules applicable to listed companies, now found in the UK Corporate Governance Code, have been complemented principles based regulation of institutional investors activity in company affairs.
The UK's integration in the European Union meant a steadily growing body of EU Directives and case law to harmonise company law within the internal market. [3]
A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity and recognized as such in law for certain purposes. Early incorporated entities were established by charter. Most jurisdictions now allow the creation of new corporations through registration. Corporations come in many different types but are usually divided by the law of the jurisdiction where they are chartered based on two aspects: whether they can issue stock, or whether they are formed to make a profit. Depending on the number of owners, a corporation can be classified as aggregate or sole.
Business is the practice of making one's living or making money by producing or buying and selling products. It is also "any activity or enterprise entered into for profit."
The South Sea Company was a British joint-stock company founded in January 1711, created as a public-private partnership to consolidate and reduce the cost of the national debt. To generate income, in 1713 the company was granted a monopoly to supply African slaves to the islands in the "South Seas" and South America. When the company was created, Britain was involved in the War of the Spanish Succession and Spain and Portugal controlled most of South America. There was thus no realistic prospect that trade would take place, and as it turned out, the Company never realised any significant profit from its monopoly. However, Company stock rose greatly in value as it expanded its operations dealing in government debt, and peaked in 1720 before suddenly collapsing to little above its original flotation price. The notorious economic bubble thus created, which ruined thousands of investors, became known as the South Sea Bubble.
A partnership is an arrangement where parties, known as business partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations. Organizations may partner to increase the likelihood of each achieving their mission and to amplify their reach. A partnership may result in issuing and holding equity or may be only governed by a contract.
A joint-stock company is a business entity in which shares of the company's stock can be bought and sold by shareholders. Each shareholder owns company stock in proportion, evidenced by their shares. Shareholders are able to transfer their shares to others without any effects to the continued existence of the company.
Incorporation is the formation of a new corporation. The corporation may be a business, a nonprofit organization, sports club, or a local government of a new city or town.
The Bubble Act 1720 was an act of the Parliament of Great Britain passed on 11 June 1720 that incorporated the Royal Exchange Assurance Corporation and London Assurance Corporation, but more significantly forbade the formation of any other joint-stock companies unless approved by royal charter.
In a limited company, the liability of members or subscribers of the company is limited to what they have invested or guaranteed to the company. Limited companies may be limited by shares or by guarantee. In a company limited by shares, the liability of members is limited to the unpaid value of shares. In a company limited by guarantee, the liability of owners is limited to such amount as the owners may undertake to contribute to the assets of the company, in the event of being wound up. The former may be further divided in public companies and private companies. Who may become a member of a private limited company is restricted by law and by the company's rules. In contrast, anyone may buy shares in a public limited company.
A limited liability partnership (LLP) is a partnership in which some or all partners have limited liabilities. It therefore can exhibit aspects of both partnerships and corporations. In an LLP, each partner is not responsible or liable for another partner's misconduct or negligence. This distinguishes an LLP from a traditional partnership under the UK Partnership Act 1890, in which each partner has joint liability. In an LLP, some or all partners have a form of limited liability similar to that of the shareholders of a corporation. Depending on the jurisdiction, however, the limited liability may extend only to the negligence or misconduct of the other partners, and the partners may be personally liable for other liabilities of the firm or partners.
Corporate law is the body of law governing the rights, relations, and conduct of persons, companies, organizations and businesses. The term refers to the legal practice of law relating to corporations, or to the theory of corporations. Corporate law often describes the law relating to matters which derive directly from the life-cycle of a corporation. It thus encompasses the formation, funding, governance, and death of a corporation.
Limited liability is a legal status in which a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a corporation, company or joint venture. If a company that provides limited liability to its investors is sued, then the claimants are generally entitled to collect only against the assets of the company, not the assets of its shareholders or other investors. A shareholder in a corporation or limited liability company is not personally liable for any of the debts of the company, other than for the amount already invested in the company and for any unpaid amount on the shares in the company, if any, except under special and rare circumstances permitting "piercing the corporate veil." The same is true for the members of a limited liability partnership and the limited partners in a limited partnership. By contrast, sole proprietors and partners in general partnerships are each liable for all the debts of the business.
A limited partnership (LP) is a form of partnership similar to a general partnership except that while a general partnership must have at least two general partners (GPs), a limited partnership must have at least one GP and at least one limited partner. Limited partnerships are distinct from limited liability partnerships, in which all partners have limited liability.
A company, abbreviated as co., is a legal entity representing an association of legal people, whether natural, juridical or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared goals.
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.
Events from the year 1720 in Great Britain.
The United Kingdom company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directives and court cases, the company is the primary legal vehicle to organise and run business. Tracing their modern history to the late Industrial Revolution, public companies now employ more people and generate more of wealth in the United Kingdom economy than any other form of organisation. The United Kingdom was the first country to draft modern corporation statutes, where through a simple registration procedure any investors could incorporate, limit liability to their commercial creditors in the event of business insolvency, and where management was delegated to a centralised board of directors. An influential model within Europe, the Commonwealth and as an international standard setter, UK law has always given people broad freedom to design the internal company rules, so long as the mandatory minimum rights of investors under its legislation are complied with.
Indian company law regulates corporations formed under Section 2(20) of the Indian Companies Act of 2013, superseding the Companies Act of 1956.
The history of corporate law in the United States concerns the development of the corporation, primarily as a business organization, under the different United States corporate law, including federal regulation.
London Assurance was an English insurance company founded in 1720, in the midst of the South Sea Bubble speculation. It was acquired by Sun Alliance in 1965 to form the Sun Alliance and London.