2.7 A short history of the corporation  (Page 2/7)

Structures that exert monopoly control and regulate a domain of specialized

Those familiar with European history know that the university came from student guilds. Students banded together to hire noted scholars willing to teach their research. Other guilds were formed around practical occupations as butchering or shoe making. Eventually, guilds evolved to address a series of practical problems: (1) how to educate individuals concerning the skills and knowledge required by the practice, (2) how to identify those responsible for the improper practice of the craft, (3) how to control who could and could not participate in (and profit from) the craft, and (4) how to regulate the craft to promote the interests of its practitioners and its beneficiaries or clients. Guilds became responsible for controlling the privileges of a trade, establishing rules and standards of practice, and holding courts to adjudicate grievances between participants. (Stone: 11-13)

A set of means specially designed to pool capital and resources including human resources.

As business ventures became more ambitious, their successful execution required raising considerable funds and capital along with the coordination of the activities of diverse human agents. Organizational structures were created slowly over time to raise money, acquire capital, and manage these complex ventures. This included creating roles that were coordinated through complex organizational systems. The distinction between the owner and manager functions, so crucial to the structure of the modern corporation, emerged slowly during this period. Owners provided money and capital and determined the overall goals pursued by the organization. Managers carried out administrative tasks concerned with day to day operations; their moral and legal duty was to remain faithful to the aims and interests of the owners. Unchartered joint stock companies served as proto-corporations that generated capital, protected monopolies of trade and craft, and managed complex ventures such as importing spices and tea from the Orient. As these structures evolved, they increasingly embodied the important distinction between the ownership and management functions.

Providing a legal shield to limit owner and operator liability

Scandals in 18th century Great Britain revealed another set of problems besetting the emerging corporation. When the unchartered joint stock company, the South Sea Company, went bankrupt, all the investors and owners found themselves responsible for covering the huge debt created when risky investments and questionable ventures went sour. This debt went well beyond resources of the investors destroying their personal fortunes and placing many of them in debtor's prison. (This and other fiascoes were dramatized by Charles Dickens in his novel, Little Dorrit .) The specter of unlimited liability scared off potential investors and set back the development of the corporation. It became necessary to endow joint stock companies with powers and devices that limited and distributed financial, moral, and legal risk. (Both owners and managers required protection although in different ways.) Individuals would invest in joint stock companies only when the associated risks became manageable and widely distributed.