Private Limited Liability Companies Research Articles

The Private Origins of the Private Company: Britain 1862-1907

This article recalls the fact that in Britain (and elsewhere), until the mid-19th century, neither company legislation, nor jurists or economists, envisioned companies to be private or small. Nevertheless, once freedom of incorporation and general limited liability were enacted, a new practice was set in motion. Smaller companies were formed in growing numbers, replacing partnerships, family firms and even sole proprietorships, and operated in sectors in which corporations had not been found before. These companies did not seek access to the stock markets. The article tracks the take-up pattern of the corporate form in Britain. It analyzes the reasons for the decision of businesspersons to incorporate their small firms. It examines the reactions of the courts (in the famous Salomon v. Salomon case) and of the legislature to this unpredicted practice, which emerged from the bottom up. It argues that incorporators and their lawyers used the available contractual flexibility to privately design the Articles of Association and adjust them to the specific needs of private and small companies, often by introducing partnership internal governance rules into company Articles. Eventually, in 1907, the private company was recognized by the Companies Act. The article relies on newly gathered data on the take-up of the company form and a newly produced sample of company files. It is part of a wider collaborative and comparative project that studies private limited liability companies (PLLCs) in Germany, Britain, France and the US.

Ownership and Control in the Entrepreneurial Firm: An International History of Private Limited Companies

We use the history of private limited liability companies (PLLCs) to challenge two pervasive assumptions in the literature: (1) Anglo-American legal institutions were better for economic development than continental Europe’s civil-law institutions; and (2) the corporation was the superior form of business organization. Data on the number and types of firms organized in France, Germany, the UK, and the US show that that the PLLC became the form of choice for smalland medium-size enterprises wherever and whenever it was introduced. The PLLC’s key advantage was its flexible internal governance rules that allowed its users to limit the threat of untimely dissolution inherent in partnerships without taking on the full danger of minority oppression that the corporation entailed. The PLLC was first successfully introduced in Germany, a code country, in 1892. Great Britain, a common-law country followed in 1907, and France, a code country, in 1925. The laggard was the US, a common-law country whose courts had effectively killed earlier attempts to enact the form. JEL codes: N8, G3, O16, K22

Putting the Corporation in its Place

This article challenges the idea that the corporation is a globally superior form of business organization and that the Anglo-American common-law is more conducive to economic development than the code-based legal systems characteristic of continental Europe. Although the corporation had important advantages over the main alternative form of organization (partnerships), it also had disadvantages that limited its appeal to small- and medium-sized enterprises (SMEs). As a result, when businesses were provided with an intermediate choice, the private limited liability company (PLLC) that combined the advantages of legal personhood and joint stock with a flexible internal organizational structure, most chose not to organize as corporations. This article tracks the changes that occurred in the menu of business organizational forms in two common-law countries (the United Kingdom and the United States) and two countries governed by legal codes (France and Germany) and presents data showing the rapidity with which firms in each country responded to enabling legislation for PLLCs. We show that the PLLC was introduced first and most easily in a code country (Germany) and last and with the most difficulty in a commonlaw country (the United States). Late introduction was associated with prolonged use of the partnership form, suggesting that the disadvantages of corporations did indeed weigh heavily on SMEs.

Putting the Corporation in its Place

This article challenges the idea that the corporation is a globally superior form of business organization and that the Anglo-American common-law is more conducive to economic development than the code-based legal systems characteristic of continental Europe. Although the corporation had important advantages over the main alternative form of organization (partnerships), it also had disadvantages that limited its appeal to small- and medium-sized enterprises (SMEs). As a result, when businesses were provided with an intermediate choice, the private limited liability company (PLLC) that combined the advantages of legal personhood and joint stock with a flexible internal organizational structure, most chose not to organize as corporations. This article tracks the changes that occurred in the menu of business organizational forms in two common-law countries (the United Kingdom and the United States) and two countries governed by legal codes (France and Germany) and presents data showing the rapidity with which firms in each country responded to enabling legislation for PLLCs. We show that the PLLC was introduced first and most easily in a code country (Germany) and last and with the most difficulty in a commonlaw country (the United States). Late introduction was associated with prolonged use of the partnership form, suggesting that the disadvantages of corporations did indeed weigh heavily on SMEs.

A New Wave in the History of Corporate Governance

This special issue showcases a new wave of historical research on corporate governance. The new wave is reacting to the exhaustion of the intellectual agenda of the initial scholarship devoted to the question of the emergence and variable development of corporate governance systems in different national economies. Indeed, in many ways the new wave represents a moment of genuine intellectual liberation. Much of the old literature focused nearly exclusively on questions regarding the concentration or dispersion of ownership, and attendant issues of the strength of minority protections, the role of banks, and the depth of the securities market in different countries. New wave scholars are asking historical questions about types of corporate governance and the evolution of national systems that literally could not be seen within the categories of the old debate—or if they could be seen, were thought to be so tangential to the dynamics of efficient governance that they were ignored. How is it possible, for example, for there to have been a deep securities market and strong universal banks in pre World War I Germany? Or, what role in national economic development did pyramid holding structures playin turn of the century Japan? Did the existence of a legal alternative to the joint stock company, such as the private limited liability company (PLLC) affect the manner in which different countries embraced the joint stock corporation? New questions have also stimulated search for new kinds of data, and most of the new wave historians of corporate governance have been immersed in archival research that was simply not characteristic of the work that their predecessors undertook. This close archival work has in turn generated new observations and new questions. How did the various stock exchanges in the USA between 1880 and 1930 actually work? Who bought what, where, how, and to what effect? Or, how did the cosmopolitan character of London impact the relationship between finance and the large and numerous British global corporations? How was family ownership concretely related to the dispersal of stock? All of the above questions are posed and, to a degree, answered by the essays in this issue. The purpose of this brief introduction will be to outline why those are interesting and quite new questions in the context of the historiography of corporate governance. The first section will outline how the first wave of research into the comparative history of corporate governance exhausted itself and, thereby, created the possibility for new wave scholars to pose alternative sorts of questions. The second section sets out the thematic and methodological distinctiveness of the new wave of research. The third section outlines the specific contributions to the special issue.

The effects of inspire art: A Critical comparison of the formation of German and English companies

On 30 September 2003, the European Court of Justice continued, in its Inspire Art decision, in its quest to strengthen freedom of establishment. This decision has lead to an ever increasing number of English private limited liability companies (hereafter, ‘Ltds.’) operating in Germany. It is the purpose of this paper to compare a Ltd. with Its German correlate, the GmbH, focussing on foundation and capital requirements. It is argued that currently it is not advisable to operate Ltds. in Germany. In this respect, suggestions for the further harmonisation of European Company Law will be advanced.

Selected problems concerning formation of a holding SE (societas europaea)

Formation of a holding SE is one of the four ways of establishing a European Company (societas europaea- ‘SE') as regulated in the Council Regulation No 2157/2001 on the Statute for a European Company (cited below: SE-Reg.). It is also an original way of European company law to create a joint stock company. It's true that companies are making use of the holding structure in order to combine their economic potentials and to create international groups of enterprises. But, as it was in the case of the formation of theAventis S.A., the holding structures usually come into existence by means of an increase of the subscribed capital in an existing company. The new shares are issued to the shareholders of another company who pay for it with the shares of their company. The operation results in formation of a holding structure in which the company that increased its capital, becomes a holding company dominating a company or companies the shares of which were contributed. The formation of a holding SE is guided by the similar idea: an exchange of the shares of national private or public limited liability companies into the shares of a European Company. However, in contrast to the Aventis like-cases, the dominant company, i.e. the SE, does not exist yet but has to be created by the companies according to the provisions of the SE-Regulation. This fact as well as many legal gaps existing in the scanty regulation of holding formation and the necessity to apply both the provisions of European and national law concomitantly may lead to many legal problems some of which will be presented below.