The Origin Of Modern Trading Corporations

To solve large-scale problems of different kind has always implied to compiling and combining of resources with labour. Certain goal can only be attained by cooperation and collaboration resulting in division of labour and specialization.

The mediaeval man was well aware of these facts which lay behind his attempts of new social organization, where the most successful become the corporation with limited liability. Such a corporation was originally established to serve a public good. A plain example is the foundation of the first universities in Italy and France during the Middle Ages.

The corporation in very early times, however, envolved from a venture regarding public purposes to a phenomenon mainly dedicated to the fulfilment of private gains. The league of merchants in Europe can be considered the real creators of the modern corporation as it promoted both growth and competition through apprenticeship. These self-governing groups were usually presented its authority from the king or crown and possessed exclusive rights of toll-free trade in a given area. Such grants and also more specific blessings given to certain persons were soon to be seen as right rather than privileges.

The trading corporation or company soon grew in size with its practices of using partnership in business. Partnership was, however, na inadequate and often dangerous way of organization when the trade grew. A big problem was the possibility to raise enough capital for large projects. Another was that each partner was responsible for all the others and if one of them died the partnership was dissolved.

The demands to be satisfied by a well-working corporation therefore should be according to the following:

1. The accumulation of large sums of capital should be enhanced.

2. The life span of the corporation should outlast the life span or interest of its owners (it should have a life of its own).

3. Risks and liabilities of those participating in the corporation should be limited.

4. It should be possible to participate without involvement in daily management.

These goals should be realized through ‘incorporation’, as a ‘limited’ liability company. Here we see the origin of the well-known abbreviations ‘Inc.’ and ‘Ltd.’ in connection with British company names. This new institutional structure was able to secure necessary credits and span large blocks of space and time as well as handle long-lasting ventures. It was supported by a governmental legislative advocacy which by degrees accepted to threat companies as individuals.Facilitating factors for this new kind of corporation was the familiarization with Italian double entry bookkeeping and Arabic numerals. Separation of accounts in connection with limited liability and increased calculation speed was now possible and conquered the world about 1600 BC.

The new corporations soon proved to be a phenomenon of great flexibility. Created for a specific purpose, documented in legally specified instruments, it was only responsible to its owners. The liability of its owners or stockholders was limited to what was invested. New stockholders could constantly be added and old ones could quit without hindrance. Owners could participate without being directly absorbed of its daily management. Decision-making and management could be standardized and simplified and productivity enhanced. There was a clear distinction between corporation and society