History of Companies - 18th Century

18th Century

A similar chartered company, the South Sea Company, was established in 1711 to trade in the Spanish South American colonies, but met with less success. The South Sea Company's monopoly rights were supposedly backed by the Treaty of Utrecht, signed in 1713 as a settlement following the War of Spanish Succession, which gave the United Kingdom an assiento to trade in the region for thirty years. In fact the Spanish remained hostile and let only one ship a year enter. Unaware of the problems, investors in the UK, enticed by extravagant promises of profit from company promoters bought thousands of shares. By 1717, the South Sea Company was so wealthy (still having done no real business) that it assumed the public debt of the UK government. This accelerated the inflation of the share price further, as did the Bubble Act 1720, which (possibly with the motive of protecting the South Sea Company from competition) prohibited the establishment of any companies without a Royal Charter. The share price rose so rapidly that people began buying shares merely in order to sell them at a higher price, which in turn led to higher share prices. This was the first speculative bubble the country had seen, but by the end of 1720, the bubble had "burst", and the share price sank from £1000 to under £100. As bankruptcies and recriminations ricocheted through government and high society, the mood against corporations, and errant directors, was bitter.

Stewart Kyd, the author of the first treatise on corporate law in English, defined a corporation as,

"a collection of many individuals united into one body, under a special denomination, having perpetual succession under an artificial form, and vested, by policy of the law, with the capacity of acting, in several respects, as an individual, particularly of taking and granting property, of contracting obligations, and of suing and being sued, of enjoying privileges and immunities in common, and of exercising a variety of political rights, more or less extensive, according to the design of its institution, or the powers conferred upon it, either at the time of its creation, or at any subsequent period of its existence."

Due to the late 18th century abandonment of 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 government direction. In 1776, Adam Smith wrote in 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.

• The Charitable Corporation v Sutton (1742) 26 ER 642
• Attorney General v Davy (1741) 2 Atk 212