COMPANY LAW In the 1600s, the British Crown began granting

monopolies to groups of investors willing to

Part One: What Exactly is a Corporation?
A corporation is a legally distinct entity that has many of
the rights attributed to individuals.[1] These rights include
the ability to enter into contracts, take out loans, sue others,
be sued, own assets, pay taxes, and so on.[2] A corporation
is formed when individuals exchange consideration
(usually in the form of cash) for shares of the corporation,
which in turn creates a right to a portion of profits.
[3] Generally, the losses incurred by a shareholder of a
corporation are limited to the amount invested; this concept
is known as limited liability.[4] Limited liability allows
individuals to avoid personal liability for a business entity’s
losses, thereby allowing risk-averse individuals to assume
risks they otherwise would not have undertaken.
[5] Corporations also allow individuals to pool resources to
achieve goals that would be unattainable by a person acting
in an individual capacity, and can last longer than an
individual’s lifetime.[6] The benefits of the corporate form
also create opportunities for abuse, which will be discussed
below.
undertake certain ventures.[13] These monopolies
took the form of “joint-stock” companies that
allowed labor and capital to be aggregated for the
purpose of undertaking tasks that would be too
large for any one person.[14] A famous example
was that of the East India Company, in which
investors pooled capital into a single “joint-stock”
company from which profits would be distributed
according to capital invested.[15] Only members of
the East India Company had the privilege of
conducting trade with India.[16] The East India
Company eventually came to form a government
over large portions of India and maintain a
standing army. [17] Other notable “joint-stock”
companies, such as the Virginia Company, helped
expand British control of North America.[18] In
fact, the Virginia Company established the General
Assembly, which was the first legislature in North
America.[19] These examples show that by allowing
the aggregation of resources, corporations can be
organized to carry out tasks too big for one person,
or even one government.
NB: extra reading

Part Two: The Development of the Corporate Form

The roots of the corporate form can be traced into antiquity.
[7] Below, I will discuss important developments which
have shaped the corporations we know today. I will begin
with the emergence of limited liability.
Early Notions of Limited Liability: The corporate form
emerged from economic arrangements that mirrored the
concept of limited liability offered by modern corporations.
One such arrangement was the commenda, a system
developed in Eleventh Century Italy, wherein a ‘passive
partner’ provided funding for a merchant vessel to be sailed
by a ‘managing partner’ who invested no capital.[8] Upon
completion of the voyage, the partners divided up the
profits under a predetermined formula.[9] This arrangement
allowed the passive partner to limit his or her liability of
their investment, while the managing partner assumed the
risks associated with the cargo and the voyage.[10] Soon,
investors began pooling their funds to diminish the risk of
losing their entire fortune on a single voyage.[11] In doing
so, the investors realized the benefits of pairing limited
liability with diversification.[12]

Development of ‘Joint-Stock’ Companies:

NB: Extra Reading