structure has been widely adopted for venture capital funds in the USA and Britain, and in the USA in particular, for such ventures as oil and gas exploration, development drilling, real estate projects, equipment leasing, film financing, and research and development.
Limited partnerships are also used to separate ownership and control, and as such are especially popular in Europe as a means of perpetuating family control of an expanding enterprise.
The basic characteristics of the company are its separate legal personality, its permanence through perpetual succession, its delegation of management, its shared ownership with transferable shares, and the limited liability it carries for owners and managers in the majority of cases.
Early companies like the East India Company were places where lives were at risk, as well as fortunes, as ships encountered routine hazards such as bad weather, piracy and hostilities between nations. As companies developed from organisations engaged in business into distinct legal entities, laws championed in the mid-nineteenth century by a few English politicians, including William Gladstone and Robert Lowe, “the father of the modern company”, introduced limited liability. [20]
The development of the limited liability company coincided with that of the new industry of railways, which required huge amounts of capital. A railway company could now raise that capital by issuing shares to any number of investors, who would be encouraged to invest in the knowledge that their liability for the debts of the company would be limited to their shareholding.
Despite teething problems, including many failures of the first limited companies, or little Republics as Lowe called them, the various Companies Acts of the mid-nineteenth century launched a new institution which was widely copied in many other countries. The “various ‘Ltds’, ‘Incs’, ‘SAs’, ‘AGs’ and so on drew in capital from around the globe”. [21] Already in 1904, for example, “the Zionist bank in London boasted 135,000 shareholders, the largest number financing any enterprise in the world”. [22]
According to Micklethwait and Wooldridge, authors of a compelling study on the history of the company, [23] “companies have proved themselves the most efficient creators of prosperity and progress yet known to humanity”, and “Most of us work for them. They make almost everything we buy. Most of our savings are tied up in them”. [24] Companies also display an impressive ability to transform themselves. Thus, for example, the American company 3M moved from mining to abrasives and Scotch Tape and myriad other industries, while the Finnish company Nokia, a former papermaker, has become a leading producer of mobile phones.
The corporate structure has become the most important form of economic association for major business enterprise in the advanced market economies. Major companies have been responsible for immense undertakings with long timescales, high costs and considerable risks, such as the exploitation of North Sea oil and gas reserves and the development of new pharmaceutical products. So it is perhaps no surprise that Nicholas Murray Butler, President of Columbia University and one of the great sages of his era, considered the limited liability corporation to be the single greatest discovery of modern times. [25]
Endnotes
1 QuotationsBook, www.quotationsbook.com/quote/21186 (14 October 2010). [return to text]
2 William Bernstein, A Splendid Exchange: How Trade Shaped the World (Atlantic Books, 2009), p. 346. [return to text]
3 Department for Business Innovation & Skills, Statistical Press Release, www.stats.bis.gov.uk/ed/sme/Stats_Press Release_2009.pdf (13 October 2010). [return to text]
4 Anthony Sampson, Company Man: The Rise and Fall of Corporate Life (HarperCollins, 1996), p. 16. [return to text]
5 Bernstein, A Splendid Exchange, p. 346; see also Johnston Birchall, The international co-operative movement (Manchester University Press, 1997), p. 14. [return to text]
6 The following section draws heavily on Peter Pugh, The Magic of a Name: The Rolls-Royce Story (Icon Books, Parts One to Three, 2000-2002). [return to text]
7 The following section draws heavily on Donald Read, The Power of News: The History of Reuters (Oxford University Press, 1992) and Brian Mooney & Barry Simpson, Breaking News: How The Wheels Came Off at Reuters (Capstone, 2003). [return to text]
8 Read, The Power of News, p. vii. [return to text]
9 Read, The Power of News, pp. 241-242. [return to text]
10 Read, The Power of News, p. 283. [return to text]
11 Its full title is the Royal Society for the encouragement of Arts, Manufactures and Commerce. [return to text]
12 François Duchêne, Jean Monnet: The First Statesman of Interdependence (W.W. Norton, 1994), p. 9. [return to text]
13 Aneurin Bevan, quoted in Nicholas Timmins, The Five Giants: A Biography of the Welfare State (Fontana Press, 1996), p. 101. [return to text]
14 Harold Evans, Gail Buckland and David Lefer, They Made America: From the Steam Engine to the Search Engine: Two Centuries of Innovators (Back Bay / Little, Brown, 2006), p. 178. [return to text]
15 Malcolm Dean, ‘The Architect of Social Innovation’, in Dench, Flower and Gavron, eds., Young at Eighty (Carcanet Press, 1995), p. 105. [return to text]
16 Bernstein, A Splendid Exchange, p. 15. [return to text]
17 Richard Pipes, Property & Freedom (The Harvill Press, 1999), p. 217. [return to text]
18 For a discussion of comparative systems, see Jonathan Charkham, Keeping Good Company: A Study of Corporate Governance in Five Countries (Oxford University Press, 1995). [return to text]
19 This section draws heavily on John Micklethwait and Adrian Wooldridge, The Company: A Short History of a Revolutionary Idea (Weidenfeld & Nicolson, 2003). [return to text]
20 Micklethwait and Wooldridge, The Company, pp. 57-58. [return to text]
21 John Micklethwait and Adrian Wooldridge, ‘Stupid white men or the true revolutionaries of our age?’, Financial Times (22/23 February 2003). [return to text]
22 Rob Humphreys, The Rough Guide to Vienna (Rough Guides, 2001), p. 249. [return to text]
23 Micklethwait and Wooldridge, The Company. [return to text]
24 John Micklethwait and Adrian Wooldridge, ‘Stupid white men or the true revolutionaries of our age?’. [return to text]
25 John Micklethwait and Adrian Wooldridge, ‘The British invented it, by accident, then other countries did it better: the making of the modern company’, The Times (29 August 2003). [return to text]
2. Ownership, Control and Governance
All thoughtful people believe that corporate enterprise should be organized and operated to serve the interests of society as a whole.
Henry Hansmann and Reinier Kraakman [1]
The ownership, control
