Monday, May 24, 2010

Harris on the Private Origins of British Private Companies

Ron Harris, Tel Aviv University Buchmann Faculty of Law, has posted The Private Origins of the Private Company: Britain 1862-1907. Here’s the abstract:
This article recalls the fact that in Britain (and elsewhere), until the mid-19th century, neither company legislation, nor jurists or economists, envisioned companies to be private or small. Nevertheless, once freedom of incorporation and general limited liability were enacted, a new practice was set in motion. Smaller companies were formed in growing numbers, replacing partnerships, family firms and even sole proprietorships, and operated in sectors in which corporations had not been found before. These companies did not seek access to the stock markets. The article tracks the take-up pattern of the corporate form in Britain. It analyzes the reasons for the decision of businesspersons to incorporate their small firms. It examines the reactions of the courts (in the famous Salomon v. Salomon case) and of the legislature to this unpredicted practice, which emerged from the bottom up. It argues that incorporators and their lawyers used the available contractual flexibility to privately design the Articles of Association and adjust them to the specific needs of private and small companies, often by introducing partnership internal governance rules into company Articles. Eventually, in 1907, the private company was recognized by the Companies Act. The article relies on newly gathered data on the take-up of the company form and a newly produced sample of company files. It is part of a wider collaborative and comparative project that studies private limited liability companies (PLLCs) in Germany, Britain, France and the US.
Image credit: Aaron Saloman, courtesy of Prof. Michael Adams's blog entry on Saloman v. Saloman

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