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4.2 Development of Corporate and Insolvency Laws
4.2.1 Historical Development of Corporate Law
The development of English company law can be traced back to medieval times
when corporate activities were often conducted through religious affiliations or
grants from the Crown. 2 The early form of association was based on trade conducted
in accordance with the commercial policy of a state. 3 The medieval structures of
commerce were the guild of merchants in which each member traded on his account,
subject to the rules of the guilds. 4,5 There was no room for the principle of limited
liability in this form of association since each member traded on his account and
would be personally liable. The guilds eventually obtained charters from the Crown
in order to monopolise a particular commodity of a particular trade. Over time the
medieval guilds could not accommodate increasing foreign trade and began to evolve
into new forms, appropriate to foreign trade the regulated company. 6 The regulated
company was the forerunner to the early joint stock company.
Initially, the formation of joint stock companies did not attain any corporate status
since such status can only be conferred by a Royal Charter or an Act of Parliament. 7
The incorporation of companies was seen at the time as privileges rather than as
rights. The benefits associated with incorporation included a monopoly of trade, and
2 William Holdsworth A History of English Law (Sweet & Maxwell, London 1903-66) Vol VIII at
206.
3 Ibid.
4 Guilds or gilds existed from Anglo-Saxon times for various purposes - religious, social and
commercial. The earliest form of association linked with commercial purposes was Gild Merchants.
It was often necessary to pass bye-laws in order to accomplish the objectives which gilds were
formed and to keep and audit accounts. There were close fellowships among members - conditions
of membership generally by birth or apprenticeship - traits similar to earliest joint stock companies
(Holdsworth above n2 at193-194).
5 L.C.B Gower Gower’s Principles of Modern Company Law (5 th ed., Sweet & Maxwell, 1992) at 21.
6 Clive Schmitthoff “The Origin of the Joint-Stock Company” (1939) 3 Uni Toronto LJ 74 at 81.
7 John Farrar and Brenda Hannigan Farrar’s Company Law (Butterworths, London, 1998) at 16.
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