Ok I am not Prof. Cox but is it worth understanding the past of corporate law anymore? How much value does it add to current debates in this field such as corporate social responsibility, financial regulation, European company regulation and probably a few others.
This blog post is the first of a brief overview of some of the key events in the corporate law timeline.
Year 1720 - This was the year of the introduction of the "Bubble Act". The Act received Royal Assent on the 11th June 1720.
Scholars have debated its purpose. Two primary theses are: 1) was to enhance the importance of charters and to enhance Parliament's ability to raise revenue through the issue of charters. It was argued by one scholar, Henry Butler, that "the Bubble Act was a government created entry barrier designed to put out of business all business associations which were competing with Parliament's charter business"; 2) A now more established thesis is that it was the South Sea Company who initiated the Act to protect its own bubble from a wave of small bubbles that competed with the company's conversion scheme. (R Harris, 'The Bubble Act' (1994) 54(3) Journal of Economic History 610) This would, according to Harris, hinder investment opportunities and divert more capital to South Sea shares. By the 24th June share price at South Sea had peaked at £1050 but by the end of the year the bubble had burst and shares had dropped to below £200 at the end of the year. The crash constituted the first international stock market bust. It severely threatened English public finance.
The passage of the Bill demonstrates the problems a severe lack of independence can have when formulating legislation and decision making. Those responsible for debating the Bill in Parliaments were mostly connected to the company either as directors, friends or subscribers to shares. Also at the time of Royal Assent there was significant optimism over the success of the debt conversion scheme that would lower the national debt notably through payments by the company to the Treasury, meaning the Act was probably not a response to any impending crash.
The Act itself prohibited incorporation of new joint stock companies. Incorporation could only be achieved by charters granted by the Crown or private Acts of Parliament. However, as observed by Watson this did not stop the creation of unincorporated forms of business organisations ((2011) Journal of Business Law 597). Harris also notes that acting as a corporate body without incorporation was deemed illegal prior to the Act under common law under an ancient common law writ of scire facias. If anything, the Bubble Act only added new procedure and punishment to what had already been sanctioned.
As such Harris views the Bubble Act as less intrusive on the development of corporate law as others have made out. Harris notes the Act did little to prevent the South Sea bubble crash and it was not designed to regulate the market or practice of investors.
It was not until 1825 though that the Bubble Act was repealed. Despite the crash of the market Harris highlights that the events served to strengthen the market developing an integrated and efficient international financial market. So despite the crash the economy recovered and developed. It appears the South Sea Company was not too big to fail.
Watson argued that the Bubble Act in fact helped develop company law by forcing individuals to find new ways of creating organisations to run a business. However, the Bubble Act, as Harris showed, did nothing more than add additional punishment to something that was already sanctioned under the common law. The effect of the Bubble Act may not be as important though to the next phase of development since either way judges began to recognise and develop a body of law around these new forms of unincorporated business organisations.
In the next piece on corporate law history I plan to look briefly in to the Joint Stock Companies Acts and Limited Liability.
This blog post is the first of a brief overview of some of the key events in the corporate law timeline.
Year 1720 - This was the year of the introduction of the "Bubble Act". The Act received Royal Assent on the 11th June 1720.
Scholars have debated its purpose. Two primary theses are: 1) was to enhance the importance of charters and to enhance Parliament's ability to raise revenue through the issue of charters. It was argued by one scholar, Henry Butler, that "the Bubble Act was a government created entry barrier designed to put out of business all business associations which were competing with Parliament's charter business"; 2) A now more established thesis is that it was the South Sea Company who initiated the Act to protect its own bubble from a wave of small bubbles that competed with the company's conversion scheme. (R Harris, 'The Bubble Act' (1994) 54(3) Journal of Economic History 610) This would, according to Harris, hinder investment opportunities and divert more capital to South Sea shares. By the 24th June share price at South Sea had peaked at £1050 but by the end of the year the bubble had burst and shares had dropped to below £200 at the end of the year. The crash constituted the first international stock market bust. It severely threatened English public finance.
The passage of the Bill demonstrates the problems a severe lack of independence can have when formulating legislation and decision making. Those responsible for debating the Bill in Parliaments were mostly connected to the company either as directors, friends or subscribers to shares. Also at the time of Royal Assent there was significant optimism over the success of the debt conversion scheme that would lower the national debt notably through payments by the company to the Treasury, meaning the Act was probably not a response to any impending crash.
The Act itself prohibited incorporation of new joint stock companies. Incorporation could only be achieved by charters granted by the Crown or private Acts of Parliament. However, as observed by Watson this did not stop the creation of unincorporated forms of business organisations ((2011) Journal of Business Law 597). Harris also notes that acting as a corporate body without incorporation was deemed illegal prior to the Act under common law under an ancient common law writ of scire facias. If anything, the Bubble Act only added new procedure and punishment to what had already been sanctioned.
As such Harris views the Bubble Act as less intrusive on the development of corporate law as others have made out. Harris notes the Act did little to prevent the South Sea bubble crash and it was not designed to regulate the market or practice of investors.
It was not until 1825 though that the Bubble Act was repealed. Despite the crash of the market Harris highlights that the events served to strengthen the market developing an integrated and efficient international financial market. So despite the crash the economy recovered and developed. It appears the South Sea Company was not too big to fail.
Watson argued that the Bubble Act in fact helped develop company law by forcing individuals to find new ways of creating organisations to run a business. However, the Bubble Act, as Harris showed, did nothing more than add additional punishment to something that was already sanctioned under the common law. The effect of the Bubble Act may not be as important though to the next phase of development since either way judges began to recognise and develop a body of law around these new forms of unincorporated business organisations.
In the next piece on corporate law history I plan to look briefly in to the Joint Stock Companies Acts and Limited Liability.
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