This legislation has successively defined and redefined these purposes, rights and obligations among stakeholders. This legislative path has been long and winding – Table 1 provides a summary. It has been shaped importantly by the social, legal and economic climate of the day. And it is the interplay between these contextual factors that, through an evolutionary process, has delivered today’s corporate governance model. Moving to incorporation Tracing definitively the origins of what today are called companies is not straightforward. It is possible to sketch a timeline stretching back at least to Rome around 700BC to find something resembling a company (Shelton (1965)). Certainly, by the sixth century AD a number of corporate entities were codified in Roman Law (Moyle (1913)). Modern concepts of tradable “shares” in companies appear to have emerged in the mid-thirteenth century in continental Europe. In England, early methods of incorporation were set out in a common law case in 1615: incorporation was a privilege bestowed by the state, either by a Royal Charter or a private Act of Parliament. 3 At least in principle, this meant a company was incorporated with public good objectives in mind. A prominent early example of such a company was the Bank of England. It was established in 1694 under both a Royal Charter 4 and an Act of Parliament. 5 The Charter establishing the Bank made clear that its purpose was “to promote the public good and benefit of our people”. And so it remains today. But this incorporation process was costly, lengthy and cumbersome.

Walter Bagehot attacked unlimited liability on the grounds that its financial benefits were illusory, as most shareholders simply did not have deep enough pockets to make good prospective losses (Bagehot (1862)). International practices were also shifting. Limited liability had been introduced in parts of continental Europe from the 17th century onwards. It had also begun its journey across the Atlantic, with Connecticut and Massachusetts adopting it from 1817 (Haldane (2011)). In 1854, a Mercantile Law Commission in the UK reported on its review into limited liability. Its verdict was clear: “although the details of our mercantile laws may require correction…it would be unwise to interfere with principles which…have proved beneficial to the general industry of the country” (Johnson (2013)). In short, the costs of limiting liability outweighed its benefits. It was to no avail. A well-connected, and newly wealthy, middle class was eager to protect its riches when owning and investing in business (Ireland (2010)). And an eager-to-please political class was keen to expand business to stimulate economic activity (Blumberg (1986)). Parliament passed the Limited Liability Act in 1855. With limited liability, incentives to avoid insolvency were no longer so sharp. As share ownership widened, directors and shareholders became distinct entities. In the eyes of the law, a share was no longer an equitable interest in a company’s assets (Ireland (2010)). Instead it was a residual claim on its future profits. A Rubicon had been crossed. Britain’s early banks Interestingly, banks followed a somewhat more circuitous route, albeit to the same end-point.