Protection of the business from the personal creditors of the business participants may have been important to nineteenth-century business entrepreneurs. Other more important investors in the first half of the nineteenth century probably include.
O RGANIZING TEAM PRODUCTION
RESOLUTION OF THE BOARD OF MANAGERS, A HISTORY OF THE LEHIGH COAL AND NAVIGATION COMPANY (1840) [hereinafter A HISTORY OF THE LEHIGH COAL AND NAVIGATION COMPANY]. The original is in the special collection of the Hagley Museum and Library in Wilmington, Delaware.
Individual Proprietorship
JOINT STOCK COMPANIES AND CORPORATIONS
This section discusses the historical development of the law, explaining the parallel development of limited liability companies and corporations, and the legal differences between them. A history of the Lehigh Navigation Company gives us an idea of how these organizations worked in practice. BAGNALL, THE TEXTILE INDUSTRIES OF THE UNITED STATES (1893) (indicating that before 1813 unincorporated joint stock companies were not infrequently used to organize businesses in the textile sector).
We hear the story from the board of managers of the company that eventually survived, so it seems to be a version that favors White and Hazard. These authors contend that the provisions of the earliest general incorporation acts by state legislatures were very similar to the provisions of some of the more sophisticated articles of association of unincorporated joint stock companies. We turn to the history of the emergence of corporate law to see why.
THE UNIQUE CONTRIBUTION OF CORPORATE LAW
Such corporations usually required a charter to create the separate legal entity and associated governance structure, along with some special privilege or power from the state to conduct their business, such as the right to issue notes that could serve as currency or the right to road through public land.'39 Due to the special nature of the companies that were given company status, it was important that the commercial property was kept separate from the personal property of the individual company managers and that the commercial property was protected. from subdivision or seizure.'40 Therefore. It was considered an inappropriate use of legislative powers to grant corporate status for purposes that were not considered to be in the public interest. Discussing the controversies over the legitimacy of corporations in the nineteenth century, Hurst attributes some of the concern about corporations in general to "the contemporary failure to distinguish between the franchise to act as a legal entity and the franchise to engage in particular substantive lines of business or to enjoy particular privileges or immunities in material business transactions under the Act."
If we lock capital 425, it was in the interest of the state to grant such companies the status of an entity. Entity status could only be granted by an individual special charter, so each corporation had to be established by a separate act of the relevant state legislation.141 Before 1800, only a few such special charters were granted in each country. Although state courts later grappled with the implications of entity status for corporations in certain situations and wavered over the extent to which corporations should be understood as similar to or different from partnerships,"42 the separation of an incorporated legal entity from its members or participants is was rarely controversial.
Access to Corporate Status for More Purposes
Hurst has noted that many of the ventures undertaken by the earliest business corporations were "public utility-type enterprises." HURST, supra note 4, at 35. STARTS AND REGULATIONS OF THE FARMERS' AND MECHANICS' BANK5 (Philadelphia, J.B. Lippincott & Co. 1849). See EXTRACTS FROM THE CONSTITUTION AND ARTICLES OF ASSOCIATION OF THE LEHIGH COAL AND NAVIGATION COMPANY, Article VI (1821), reprinted in ACTS OF THE GENERAL ASSEMBLY, supra note 111, to 32 per cent of the investors (claiming the sum of 33 per cent).
Predictably, business organizers have not always completely succeeded in locking up capital through the use of the corporate form. The individual shareholders are not liable for the debts of the bank in their private capacity. During the existence of the corporation, it is the sole property of the corporation, and can only be applied according to its.
Boards of Directors and Restrictions on Shareholder Control
Thus, when decision-making authority is assigned to a board of directors, individual team members give up some of the capacity they might otherwise have had to keep other members afloat. Decision-making power was usually granted to the trustees of the trust established to manage the company's collective assets. Such delegation already existed in joint-stock companies before the promoters of textile companies first made extensive use of the corporate form.
For example, how much of the income should be paid out in dividends, and how much should be reinvested to expand the business?'97 In. This requirement suggests that the directors were expected to play a role in representing the interests of the bank's borrowers, as well as the interests of investors in the bank's capital. This mediating role has likely become more important over time as the number of people involved in the business grew beyond the point where all participants could be expected to know each other personally.
W hat A bout Lim ited Liability?
BUILDING ORGANIZATIONAL CAPITAL
This part will review some largely anecdotal evidence that the use of the corporate form for business has grown hand in hand with the building of hierarchical management structures, the emergence of a class of middle managers and technical specialists with long-term careers as company employees, and the branding of products headed for broad consumer markets. Chandler extensively documented the rise of large, multi-unit business organizations in the United States after about 1840. He argues that these organizations began to appear when there began to be significant economic benefits from the coordination of economic activity through administrative structures rather than through markets, and that these organizations required managerial hierarchies.215 These hierarchies in turn contributed to the stability and permanence of the organizations.' 6 Chandler noted, “Men came and went.
I will not attempt to repeat or review what Chandler has already accomplished, except to highlight the role played by the incorporation of the business enterprise. But] because board members were busy with their own jobs, these decisions were quickly handed over to board committees that met weekly or often only once a month.219. Soon, however, full-time managers took over much of the day-to-day decision-making, with their boards and committees "becoming little more than ratifying bodies.,20 But Chandler does not explore what it was about the corporation .- rate structure, in addition to the ability to raise larger amounts of capital, which made it more suitable for organizing larger business ventures.
Why I. M. Singer & Company Had to Incorporate
The partnership agreement between the three men called for the resulting patent to be "the equal property of the three partners. Brandon reports that newspapers of the period carried regular reports on the latest developments in the 'sewing machine war.'" Id. Heirs could have been given equity in the company of Singer's property without disturbing or breaking up the company's assets and management structure.
The only function that incorporation served was to ensure that the considerable organizational capital that had been accumulated by the firm could not be parted with, nor could its reputation be easily destroyed, as a result of the messy personal affairs of one of the partners. Singer had only agreed to the termination of the partnership [in which he knew he would lose his ability to "retain" the other participants] under certain conditions, the main one being that neither partner be president of the company new, while the other was alive and that both would 'retire from active participation in the management of the business'. In other words. Argyres & Julia Porter Liebeskind, Contractual Commitments, Bargaining Power, and the Indivisibility of Governance: Incorporating History into the Transaction Cost Theory of the Firm 8 (Nov. 1997) (unpublished manuscript, on file with author) (noting that the form of the corporation, unlike other forms of business historically available, shareholders bound as a group to the corporation, making it nearly impossible for them to withdraw their capital and that ``this in turn protected the interests of buyers and suppliers who otherwise would not be willing to enter into a long-term relationship with the firm that could put their wealth at risk").
But Was Incorporation Really Necessary?
When Eugene died in 1902, the older members of the clan feared that none of the younger members were qualified to run the company and that they might scatter the fortune if they took over.27' So they decided that the best thing to do was to sell their interests to the firm of Laflin & Rand, a major competitor. Frick, who was still in charge of the Coke side of the business, retaliated by outbidding Carnegie for coke and suing for a revaluation of the firm's assets Baldwin Locomotive Works of Philadelphia was the largest locomotive builder in the United States and one of the largest in the world during the second half of the nineteenth century.
Each car was custom designed to meet the specific needs of the railroad that commissioned it. The actual processes of locomotive innovation, design and custom building are discussed in detail in Chapters 3 and 6. This capability was enhanced by the fact that a corporate charter created a separate legal entity whose existence and governance were separate from any from them. its participants.
