Lesson 5 of 2006
In Australia and
throughout the world, much economic activity is performed by or through
what are called or referred to as “companies”.
Why is this so? What
is a company and how has it come about?
WHAT IS A
There are various
definitions as to what precisely, in an economic or business context, is
a company. [We are not
concerned with the use of the word in a military sense, in the sense of
companionship, a ship’s company, or whatever else.]
To a certain extent
at least the variations reflect merely the differences contained in the
statutes and regulations of governments, which regulate the legal
existence and activities of companies within the jurisdiction of each
such particular government. But
apart from such statutory or regulatory distinctions, there is basic
widespread agreement as to what constitutes a company.
A company is an
organization, a structure, an institution, an entity or a vehicle
comprising 2 or more people who have united to pursue a common business
interest. It is related to,
and sometimes overlaps, the concept of a club, an association or a
society, but is generally thought of as separate and distinct from
these. It can take the form
of a partnership, a joint stock company or a limited liability
corporation. In modern
times however the tendency has been to equate it with the limited
The history of the
company is complex and confusing. This
is partly at least because the concept has developed from differing
strands and sources and has meant different things at different periods.
In medieval Europe the viewpoint that the Catholic Church was
more than just its members and was eternal led to the development in
Canon Law of the concept of the Church as a corporation.
At the same time
the need for an ongoing existence of the position and affairs of various
individual offices or groupings of people lead to the development of the
concept of the corporation aggregate and the corporation sole. Examples of the former include the Governor and Company of
the Bank of England, the Corporation of the City of London and the
Chancellor, Masters and Scholars of the University of Cambridge. An example of the latter is the Archbishop of Canterbury.
corporations such as the Dutch and the British East India Companies were
set up by rulers and governments to undertake colonial ventures and to
benefit from trade with and exploitation of newly discovered lands. The
development of the modern company however, probably really began at
about the time of the Industrial Revolution with the legislative
chartering of various designated bodies to establish specific
infrastructure such as waterworks, roads, bridges and railways.
1820 the emphasis changed. Rather
than legislation setting up designated individual
companies, tightly regulated for a specific undertaking,
governments passed what were called Enabling Acts; legislation designed
to attract business by encouraging people generally to incorporate
within the particular jurisdiction in effect to perform whatever
business they liked. In
what has been described as “a race to the bottom”, legislatures
competed in making it easier for companies to incorporate and operate in
their particular jurisdiction. In
the USA for example this has lead to the to the “Delaware
Corporation” with perhaps 60% of the top companies in the USA being
incorporated in that state. Amongst
other things, Delaware charges no taxes on profits earned outside the
The large limited
liability Corporation is perhaps the most significant factor in the
creation of the modern world, at least in the parts generally seen or
regarded as developed and which consequentially provide their
populations generally with materially higher standards of living.
It has enabled or facilitated the aggregation of capital, thereby
providing the pool of funds required to undertake ventures too large,
too risky or too slow in returning a profit to be taken on by any one
individual or family or even a group of individuals or families.
As the size of the
pool of funds available and of the tasks undertaken increased a new
profession came into being; the manager.
Previously businesses had been operated and managed by their
owners and their families. Development
of the professional manager has lead to greater specialization and
increased efficiency resulting generally in increased returns and faster
development. It has
also enabled undertakings of ever-greater size and complexity to be
initiated and conducted.
The modern limited
liability corporation possesses a number of significant features.
The ability to sue and be
sued in its own name rather than the names of all the members.
Perpetual succession; it
continues in existence even if its members die.
Members enjoy limited
liability; they are not liable for the debts of the corporation other
than the amount they have agreed to contribute by way of the purchase of
The power and
influence of modern corporations, in many instances greater than nation
states, has resulted in many people criticising the concept of the
corporation and calling for it to be abolished or more strictly
controlled. Such modern
critics include Ralph Nader and Noam Chomsky who have called for greater
government control of the activities of corporations and a refocus on
public rather than private interest.