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originally incorporated in order to found colonies, began to disappear once those
colonies had become political societies and obtained independence. 30
The principle of joint stock companies to persuade members of the public to lend and
to invest their money in the companies was later used to finance the government
expenditures at the end of the seventeenth century. The Bank of England, for
example, was formed on the principle of a joint stock company and was granted
privileges in exchange for a loan to the government. 31 The principle was later
extended to allow companies such as the South Sea Company to take over the whole
of the state‟s debt. The South Sea Act was passed by the government to permit the
company to pay anyone who owned government annuity by paying in the form of
shares in the company.
Consequently, public confidence in the company as well as the business escalated
and its share prices soared. 32 The success of the South Sea Company spurred the
formation of other similar companies, and these financial methods had created such
frenzies for speculating, that companies started to carry out projects which had no
chances of success, such as for the invention of melting down sawdust and chips and
casting them into clean boards without cracks or knots. 33 By the end of seventeenth
century, joint stock companies were seen as a valuable instrument to provide funds
for trading purposes and for mobilisation of national credit. 34 On the other hand,
there were also opportunities for joint stock companies to perpetrate frauds on
30 Ibid.
31 Ibid, at 209.
32 Farrar and Hannigan above n7 at 18.
33 Ronald R Formoy The Historical Foundations of Modern Company Law (Sweet & Maxwell,
London, 1923) at 27-28.
34 Holdsworth above n2 at 213.
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