The Birth of The Charter

The Birth of The Charter

The Birth of the Charter

As the medieval company changed to meet the needs of mercantilism, so the mercantilist company changed to meet the needs of the expanding English economy during the first half of the nineteenth century.

As industrialism progressed, the scale of enterprise enlarged and group participation in economic undertakings became increasingly desirable. The formation of medieval corporations had required a grant from the king. Later Parliament was given the right to grant corporate charters.

Theoretically charters were granted only on grounds of high policy, and they spelled out in detail the limitations on the size and scope of the corporation's activities. The role of the company in building a liberal economy in the nineteenth century was so crucial, however, that incorporation could no longer be considered a privilege, and it became a right available to everyone. Most of the mercantilist restrictions on corporate activity were abandoned eventually.

The new circumstances required that the sovereign authority over the company be shifted from the crown and Parliament to the marketplace. The power inherent in corporate organization had to be kept under control so that the private interests served by the company would not conflict with the public interests of society. The only feasible way of doing this in a liberal economy was to depend primarily on competition to punish transgressors by causing them to fail and thus lose their power. The haziness of the distinction between public and private welfare and the dependence of the market sanction on a decentralized pattern of economic power were not clearly seen in the nineteenth century.

This brief survey suggests that the evolution of the company has followed a distinctive pattern. Since its inception it has had the same basic purpose of giving individuality to the actions of a group of individuals operating in concert. As the uses to which corporations have been put have progressively broadened, however, social authority over their actions has weakened. Society has allowed corporations to further private interests because at the same time they promoted the public welfare. This means that although the form of the company is stable, its function is not. At any one time the area of activity allowed corporations will reflect the social consensus on what private interests are sufficiently compatible with the public welfare to be permitted.

There is ample historical evidence to support the idea that the status of the company shifts according to the needs of society. When the economic need is uppermost, the company occupies a predominantly economic status and most of its activities are economic in nature. But the company is never entirely an economic entity, and at times the noneconomic aspects of its status and role are so important as to over-shadow the economic aspects.

The imperative drive toward industrialization in the nineteenth century focused attention on the economic elements of the corporation's status, but today the latent noneconomic aspects of its status are coming to the fore. This seems foreign to us because we are now used to the idea that we live in a society in which the division of labour has been carried out to a point where we have a high degree of structural differentiation among social institutions.

We are fond of pointing out that the tribe of the primitive society has become differentiated into the institutions of the family, law, government, religion, and economy in modern industrial society. The truth is, however, that the company has become a less specialized entity because it alone can perform the variety of functions required to balance our material and idealistic values and goals. When this is perceived, it becomes clear that there is no reason to be anxious because the status of the company is in a somewhat fluid state, becoming more specialized or more general according to the shifting needs of society that can be met by the corporate form.


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