This chapter investigates the changing function of the trust in Britain in the era of industrialization: from strict settlement trusts to unincorporated company and investment trusts. This transformation had several facets: trusts’ purpose changed from preserving family wealth to business; the assets held in trust changed from land to intangible assets; trustees changed from predominantly upper class to members of the professional and executive middle class. The chapter explores the doctrinal changes that became necessary to employ this early modern device in modern environments. The evolving interaction between the trust and the emerging business corporation was at the forefront of these developments. Eventually, both the unincorporated company and the investment trust were incorporated in the later part of the period studied in this chapter.

Abstract This chapter focuses on the relationship between corporations and states from the appearance of the very first corporations in the late Middle Ages to the twentieth century. It identifies four types of relationships. The first views the corporation as one of the arms of the state. The second views the corporation as an organ that, from the outset, was independent of the state. The third relationship views the corporation as expecting the state to credibly commit not to expropriate the assets pooled together in the corporation. The fourth identifies that corporations need states to provide enforcement of contracts among corporate stakeholders. The chapter shows how these types of relationships developed historically, replaced and complemented each other, and played out against each other. The text asserts that tensions between states and corporations along these types of relationships still exist today.

Ron Harris’s Going the Distance: Eurasian Trade and the Rise of the Business Corporation, 1400–1700 is an impressive and authoritative work considering the environment in which modern forms of corporations became the dominant vehicles for business around the world. Through twelve chapters divided into four distinct parts, Harris lucidly leads his reader through the formation and evolution of contracts, business partnerships, and family firms from the Mediterranean to central Asia and back again. In doing so, Harris makes a clear and theoretically sound case for the migratory nature of institutions, which was not in and of itself reliant upon colonial imposition or a by-product of European imperialism. Instead, Harris places far more agency upon merchants themselves as vectors and adopters of successful forms of corporate governance when a complementary legal and political system was in place. He similarly foregrounds how the relative poverty of European states, particularly England, informed the need for cooperative measures and organizations that could challenge existing stakeholders, exemplified in the East India Company. Harris sees this as a shift from a personal relationship based upon trust to an impersonal one that was instead built upon information sharing and ultimately shared commercial success. This success was based on the local trust networks built by agents of the European joint-stock companies, which Harris asserts was necessary to integrate with local legal and political frameworks, rather than attempting to cross legal jurisdictions when making transactions.

review on: Lauren Benton, Nathan Perl-Rosenthal (eds.), A World at Sea: Maritime Practices and Global History, Philadelphia: University of Pennsylvania Press 2020, 267 p., ISBN 978-0-8122-5241-5

This chapter explains why and how the corporation was transformed into a business corporation. It follows the early history of the corporation and examines how the corporation acquired attributes on separate legal personality and collective decision making, which were familiar to Edward Coke and his contemporaries. The chapter argues that the years around 1600 constitute an organizational revolution. It explains why European corporations were transformed around 1600 from public entities into joint-stock, for-profit entities and why this occurred in Northwest Europe and not elsewhere in Europe. The chapter also talks about why corporations were so suitable for long-distance trade that they rapidly took control of the Cape Route and rose to dominance in Eurasian trade as a whole, at the expense of family firms, merchant networks, and ruler-operated enterprises.

This chapter surveys institutional and organizational theories that are used for studying the statics and dynamics of the development of institutions in interaction with their environment. It outlines the theoretical frameworks on the development of institutions and particularly of trade organizations. The chapter also discusses theories that are useful for static analysis. It examines theories that can be deployed for the dynamic development of institutions within their environment and assert that the theoretical framework for the study of institutional migration is lacking. The chapter talks about the proliferation of academic research activity over the last half a century in areas including transaction-cost economics, theories of the firm, property-rights theories, and contract and agency theory.

This chapter provides the microstudy for the Dutch East India Company (VOC). VOC constituted an incomplete transition from ruler-owned enterprise to business corporation. Its closer connection with state objectives and state elites places it somewhere on the continuum that leads from the Portuguese ruler-owned enterprise to the English East India Company (EIC). The chapter explains how the VOC did not represent, at its inception, a full shift from personal to impersonal collaboration. But as it continued to evolve, and as investment through the secondary stock market became the norm, the VOC gradually became more impersonal. It explains that in the first decade of the VOC, the republic and the corporation insiders worked hand in hand to attract and capture outside investors.

Not much is known about the organization of the trade between Egypt and India in Roman times. Roman law is obviously well documented in surviving texts of various sorts. Trade practices in the Indian Ocean routes are sporadically known from surviving manuscripts. Actual organizational documents are practically unavailable with the rare exception of the Muziris Papyrus. The Papyrus, dated from the mid-second century CE, known also as the Vienna Papyrus, was first published in 1985. It deals with the finance and organization of trade on the route between Alexandria and Muziris in India. It adds a new dimension to our knowledge of the organizational practices of Eurasia trade in antiquity and is in fact the best source available up until the era of the Cairo Geniza, almost a millennium later. There is an ongoing debate about its nature in the papyrology literature. I will provide my own analysis of the papyrus based on legal history, economic analysis of law, and institutional economics theory. I will evaluate its nature as a loan or agency contract, as a standard form template, and as a forerunner of the sea loan and the commenda.

The environment of pre-modern maritime trade activities was, in economists’ terms, one of uncertainties, high risks, vast information asymmetries, augmented agency problems, weak enforcement of contracts, and fragile protection of property rights. Dealing with such a tough environment was a foremost institutional challenge for pre-modern contemporary merchants, jurists, and rulers. Maritime trade is where the institutional cutting-edge could be found. This is where new and innovative organizational solutions, such as general average, insurance and the business corporation, were designed.Traditional historical analysis is good at reconstructing the pattern of development of maritime trade institutions, but it is not as good at explaining the timing of origins and path of evolution of these institutions. I will use here a theoretical framework that combines insights from Frank Knight, Douglass North and Robert Scott. Knight calls attention to the role of information in the shift from uncertainty to risk and the development of insurance. North calls our attention to the role of information in reducing transaction costs and enhancing growth. Scott reminds us that institutions involve contractual drafting and that contracts can deal with information shortage and information generation. This framework focuses our attention on how to solve the informational challenges with respect to risk assessment and pricing and contractual. It takes us a long way forward in understanding the history of risk mitigation trade institutions.The history of organizational solutions for mitigation of maritime uncertainties and risks, from general average and sea loan to insurance and the business corporation benefits from and contribute to the theory of institutional development more generally.

This chapter provides theoretical insights that can assist in understanding the resistance to the migration of institutions. It offers an initial framework for the study of non-migration, the embeddedness of institutions, and the resistance to migration. The chapter explains why the business corporations did not migrate from Europe to the Middle East, India, and China in the three centuries between their first introduction in Europe, around 1600, and their eventual colonial forced introduction in Asia in the late nineteenth century. It also discusses why business corporations did not develop indigenously in the rest of Eurasia. The chapter uses contexts such as technology and mathematics to identify the causes of resistance to migration.

This chapter discusses two Surat merchants, Virji Vora and Mulla Abdul Ghafur, and their families, who are the best-documented and possibly the largest Gujarati merchants of their eras. It shows how family firms that did not rely on state support could trade over much of the span of the Indian Ocean. The chapter also reveals the vulnerability of family firms that did not rely on a wider mercantile network, state support, or corporate entity platform. Both the enterprises were based on the individual ownership and management of Virji Vora and Mulla Abdul Ghafur. They are not known to have been partners and did not separate business from family assets and affairs. The combined business activity of the two families spanned from 1619 to at least 1736.

Abstract I investigate the historical development of limited liability – widely considered a cornerstone of the business corporation – and challenge the commonplace linear narratives about how limited liability evolved. I dismiss the claim that limited liability was invented with the very first joint-stock business corporations around 1600. I also reject the assertion that it became dominant with the limited liability acts of the mid-19th century. My argument is that it was only around 1800 that limited liability became a separate corporate attribute, distinct from legal personality, and that limited liability in the modern sense became a uniform attribute of all corporations only in the 20th century. Since corporations, stock markets and the corporate economy enjoyed a long and prosperous history well before limited liability in its modern sense became established and dominant, the economic theory of limited liability needs to be revisited. The paper opens a new set of conceptual, empirical and theoretical research questions, and points to new possibilities in terms of viable future liability regimes.

Before the seventeenth century, trade across Eurasia was mostly conducted in short segments along the Silk Route and Indian Ocean. Business was organized in family firms, merchant networks, and state-owned enterprises, and dominated by Chinese, Indian, and Arabic traders. However, around 1600 the first two joint-stock corporations, the English and Dutch East India Companies, were established. This book tells the story of overland and maritime trade without Europeans, of European Cape Route trade without corporations, and of how new, large-scale, and impersonal organizations arose in Europe to control long-distance trade for more than three centuries. It shows that by 1700, the scene and methods for global trade had dramatically changed: Dutch and English merchants shepherded goods directly from China and India to northwestern Europe. To understand this transformation, the book compares the organizational forms used in four major regions: China, India, the Middle East, and Western Europe. The English and Dutch were the last to leap into Eurasian trade, and they innovated in order to compete. They raised capital from passive investors through impersonal stock markets and their joint-stock corporations deployed more capital, ships, and agents to deliver goods from their origins to consumers. The book explores the history behind a cornerstone of the modern economy, and how this organizational revolution contributed to the formation of global trade and the creation of the business corporation as a key factor in Europe's economic rise.

This chapter examines the formation, weaknesses, and demise of two ruler-owned trade enterprises. It describes the mercantile endeavors of early Ming China and sixteenth-century Portugal. The two were radically different. The Chinese state was based on Confucian ideology, on extensive learned bureaucracy, on a worldview of being the Middle Kingdom, and on its huge geographic scale and huge population. In many eras the Chinese Empire had no ambitions with respect to overseas trade, and in others it allowed either foreign or local merchants to trade but was not involved in trade directly. Portugal was a small and young kingdom on the margins of the Iberian Peninsula. Its state capacity was limited, but its exposure to seafaring was significant due to its location on the coast of the Atlantic Ocean.

Chapter 4 follows the transformation of the corporate form from an entity chiefly for municipal and public purposes, developed in the medieval period, to one used for business and trade. At the center of his account are the formations at the turn of the seventeenth century of the English East India Company (EIC) and the Dutch East India Company (Verenigde Oostindische Compagnie (VOC)—the first publicly held business corporations and the templates for later adopters of this organizational form. In these two firms the preexisting legal institution of the corporation was put to new use, as the framers of the EIC and VOC borrowed and modified the corporate form, and married it to financial innovations related to joint-stock, to enable successful collaboration between entrepreneurs pursuing oceanic trade with Asia and investors seeking to protect their interests vis-à-vis insiders. The resulting institution met diverse needs, serving as a platform for long-term enterprise, enabling impersonal investment by a large number of investors, mitigating informational asymmetries, and spreading the high risks of oceanic trade.