Editing Corporation (section)

=== Development of modern company law ===
Due to the late 18th century abandonment of [[Mercantilism|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.<ref>{{Cite web|url=http://political-economy.com/adam-smith-laissez-faire/|title=Adam Smith Laissez-Faire|website=political-economy.com|date=24 July 2010 |language=en-US|access-date=2017-06-10|archive-date=2010-07-31|archive-url=https://web.archive.org/web/20100731092626/http://political-economy.com/adam-smith-laissez-faire/|url-status=live}}</ref> 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.<ref>A Smith, ''[[An Inquiry into the Nature and Causes of the Wealth of Nations]]'' (1776), Book V, ch 1, para 107.</ref>

==== Deregulation ====
[[File: Jack and the Giant Joint-Stock.jpg|thumb|"Jack and the Giant Joint-Stock", a cartoon in ''Town Talk'' (1858) satirizing the 'monster' joint-stock economy that came into being after the [[Joint Stock Companies Act 1844]]]]
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.<ref>See [[Bubble Companies, etc. Act 1825]], 6 Geo 4, c 91</ref> 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.<ref>See [[C Dickens]], ''[[Martin Chuzzlewit]]'' (1843) [[s:Martin Chuzzlewit/Chapter 27|ch 27]]</ref>

The process of [[incorporation (business)|incorporation]] was possible only through a [[royal charter]] or a [[local and personal Acts of Parliament in the United Kingdom|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 [[Voluntary association|unincorporated associations]] with possibly thousands of members. Any consequent [[Lawsuit|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 Ewart Gladstone|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.<ref>''Report of the Parliamentary Committee on Joint Stock Companies'' (1844) in ''British Parliamentary Papers'', vol. VII</ref> The Act created the [[Registrar of Companies|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.<ref>{{cite book|url=https://books.google.com/books?id=LQflMqcZyOoC|title=Introduction to Company Law|author=Paul Lyndon Davies|year=2010|publisher=Oxford University Press|page=1|isbn=978-0-19-960132-5}}</ref> The advantage of establishing a company as a [[Legal personality|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.<ref>''Re Sea Fire and Life Assurance Co., Greenwood's Case'' (1854) 3 De GM&G 459</ref> 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 – [[shareholder]]s were still liable directly to [[creditor]]s, but just for the unpaid portion of their [[share (finance)|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|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."<ref>{{cite web|url=http://www.ehs.org.uk/ehs/conference2004/assets/AchesonTurnerPaper.pdf |title=The Impact of Limited Liability on Ownership and Control: Irish Banking, 1877–1914 |first1=Graeme G. |last1=Acheson |first2=John D. |last2=Turner |publisher=School of Management and Economics, Queen's University of Belfast |access-date=2011-11-16 |url-status=dead |archive-url=https://web.archive.org/web/20120113082939/http://www.ehs.org.uk/ehs/conference2004/assets/AchesonTurnerPaper.pdf |archive-date=2012-01-13 }} and {{cite web|url=http://www1.fee.uva.nl/fm/conference/legal/ehr_2006_%20Acheson%20and%20Turner.pdf |title=The Impact of Limited Liability on Ownership and Control: Irish Banking, 1877–1914 |first1=Graeme G. |last1=Acheson |first2=John D. |last2=Turner |work=Economic History Review |date=2006 |access-date=2011-11-16 |url-status=dead |archive-url=https://web.archive.org/web/20120111172110/http://www1.fee.uva.nl/fm/conference/legal/ehr_2006_%20Acheson%20and%20Turner.pdf |archive-date=2012-01-11 }}.</ref> 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 [[James Watt|Watt]] and [[George Stephenson|Stephenson]], and other pioneers of the Industrial Revolution. "<ref>''Economist'', December 18, 1926, at 1053, as quoted in Mahoney, ''supra'', at 875.</ref>

These two features – a simple registration procedure and limited liability – were subsequently codified into the landmark 1856 [[Joint Stock Companies Act 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]]''.<ref>''[[Salomon v A Salomon & Co Ltd]]'' [1897] AC 22</ref>

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 ====
[[File:LordLindley cropp.jpg|thumb|right|[[Nathaniel Lindley, Baron Lindley|Lindley LJ]] was the leading expert on partnerships and company law in the ''[[Salomon v A Salomon & Co Ltd|Salomon v. Salomon & Co.]]'' case. The landmark case confirmed the [[corporate identity|distinct corporate identity]] of the company.]]
In 1892, [[Germany]] introduced the {{Lang|de|[[Gesellschaft mit beschränkter Haftung]]}} 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 A Salomon & Co Ltd|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 [[Andrew Carnegie|Carnegie]]'s steel company and [[John D. Rockefeller|Rockefeller]]'s [[Standard Oil]], avoided the corporate model for this reason (as a [[Trust law|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.<ref name="Corporate Law textbook">{{Citation|last1=Smiddy|first1=Linda O.|last2=Cunningham|first2=Lawrence A.|title=Corporations and Other Business Organizations: Cases, Materials, Problems|publisher=LexisNexis|year=2010|edition=Seventh|pages=228–231, 241|isbn=978-1-4224-7659-8}}</ref>

In 1896, [[New Jersey]] was the first state to adopt an "enabling" corporate law, with the goal of attracting more business to the state.<ref>[https://books.google.com/books?id=ftzqaBv7X_sC&pg=PA159 The Law of Business Organizations] {{Webarchive|url=https://web.archive.org/web/20230105140507/https://books.google.com/books?id=ftzqaBv7X_sC&pg=PA159 |date=2023-01-05 }}, Cengage Learning</ref> 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.<ref name = "Corporate Law textbook"/>

The end of the 19th century saw the emergence of [[Holding company|holding companies]] and corporate [[Mergers and acquisitions|mergers]] creating larger corporations with dispersed shareholders. Countries began enacting [[Competition law|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 [[Conglomerate (company)|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.