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members of the public as well as to encourage them to participate in wild
speculations and gamble in stock and shares. 35
In order to overcome the problems of wild speculation and fraud, Parliament passed
the Bubble Act 1720 with the aim of restricting the use of corporations except when
authorised by an Act of Parliament or Royal Charter. 36 The restriction impelled the
formation of a new form of companies known as deeds of settlement companies,
which were a combination of trusts and associations. 37 Deed of settlement companies
became an option because it was expensive and cumbersome to obtain incorporation
through an Act of Parliament and it was very unlikely to obtain the incorporation
status via a Royal Charter. 38
Development of companies continued to prosper despite the restrictions imposed by
the Bubble Act 1720. In order to finance business activities, businessmen began to
form companies under the deeds of settlement so that they were able to raise money
from the public. 39 The need for additional capital from the public became more acute
with the growth of the railway industry and the numbers of companies continued to
grow. 40 However, not all of those companies were successful and as the numbers of
companies escalated, so did the number of company failures. 41
This spurred reforms in the area of the law though they were gradual and piecemeal,
and the first Companies Act was enacted in the UK with the aim of overcoming
35 Ibid.
36 Ibid, at 209.
37 Farrar and Hannigan above n7 at 19.
38 Ibid.
39 Clive Schmitthoff Palmer’s Company Law, (Stevens, London, 1987) Vol 1 at 7.
40 Ibid.
41 Ibid.
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