JOINT STOCK COMPANIES The joint stock company may be defined as an association of persons incorporated to promote by joint contributions to a common stock the carrying on of some commercial enterprise. Associations formed not for "the acquisition of gain" are re ferred to below. The joint stock company has had a long history which can only be briefly sketched here. The name "joint stock company" is—or was—used to distinguish such a company from the "regulated company," which did not trade on a joint stock but was in the nature of a trade guild, the members of which had a monopoly of foreign trade with particular countries or places. (See Adam Smith, Wealth of Nations, bk. v. ch. i. pt. iii.) The earliest kind of joint stock company is the chartered. (See CHARTERED COMPANIES.) The grant of a Charter is one of the exclusive privileges of the Crown, and the Crown has from time to time exercised it in furtherance of trading enterprise. Examples of such grants are the Merchant Adventurers of England, char tered by Richard II. (139o) ; the East India Co., chartered by Queen Elizabeth (1600) ; the Bank of England, chartered by William and Mary (1694) ; the Hudson's Bay Co.; the Royal African Co. ; the notorious South Sea Co. ; and in later times the New Zealand Co., the North Borneo Co., and the Royal Niger Co. Chartered companies had, however, several disadvantages. A charter was not easily obtainable and was costly. The members could not be made personally liable for the debts of the company : and once created—though only for defined objects—such a company was invested with entire independence and could not be kept to the conditions imposed by the grant, which was against public policy. A new form of commercial association was wanted, free from these defects, and it was found in the common law company—the lineal ancestor of the modern trading company. The common law company was not an incorporated association, but a great partnership with transferable shares. Companies of this kind multiplied rapidly towards the close of the 1 nth and beginning of the 18th centuries, but they were regarded with strong disfavour by the law, for reasons not very intelligible to modern notions, the chief being that such companies pur ported to act as corporate bodies, raised transferable stock, used Charters for purposes not warranted by the grant, and were— or were supposed to be—dangerous and mischievous, tending (in the words of the preamble of the Bubble Act) to "the com mon grievance, prejudice and inconvenience of His Majesty's subjects or great numbers of them in trade, commerce or other lawful affairs." They were too often—and this no dour was the real ground of the prejudice against them—utilized by unprin cipled persons to promote fantastic and often fraudulent schemes. Matthew Green, in his poem "The Spleen," notes how "Wrecks appear each day, And yet fresh fools are cast away." The result was that by an Act of 1719, commonly called the Bubble Act, such companies were declared to be common nuisances and indictable as such. But the Act, though not formally repealed till 1825, proved quite ineffectual to check the growth of joint stock enterprise, and the legislature, finding that such companies had to be tolerated, adopted the wiser course of regulating what it could not repress. One great inconvenience of these common law trading companies arose from their being unincorporated. They were f ormed of large fluctuating bodies of individuals, and a person dealing with them did not know with whom he was contracting or whom he was to sue. This evil the legislature sought to rectify by empowering the Crown to grant to companies by letters patent without incorporation the privilege of suing and being sued by a public officer. Ten years afterwards—in 1844— a more important line of policy was adopted, and all companies, with some exceptions, were enabled to obtain a certificate of in corporation without applying for a Charter or special Act. The Act of 1862 carried this policy one step farther by prohibiting all associations of more than 20 persons from carrying on busi ness without registering under the Act. The real vitality of joint stock enterprise lies in the co-operative principle, and the natural growth and expansion of this fruitful principle was checked until the middle of the i9th century by the notorious risks attaching to unlimited liability. Failures like those of Overend and Gurney, and of the Glasgow Bank, caused widespread misery and alarm. It was not until limited liability had been introduced that the real potency of the principle of industrial co-operation became apparent. The practical difficulty was how to bring home to per sons dealing with the company notice that the liability of the shareholders was limited. This was solved by requiring the com pany to add to its name the word "Limited," paint it up on its premises, and use it on all documents. While limited companies have been multiplying, the unlimited company has become prac tically an extinct species. The growth of limited companies is, indeed, one of the most striking phenomena of our day. Their number may be estimated at about 99,000. Their paid-up capital amounts to the stupendous sum of 14,636,000,000 and what is even more significant is that the number of shareholders has grown in a much greater ratio than the colossal growth of the aggregate capital. The profits and risks of nearly every kind of business have been spread over fresh thousands of individuals, and those with moderate incomes are more and more participat ing in that accumulation of wealth from business which formerly built up the fortunes of individual traders, bankers, or single families.
It is with the limited company then—the company limited by shares—as the normal type and incomparably the most im portant, that this article mainly deals.