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Providing a legal shield to limit owner and operator liability

15 January, 2016 - 09:09
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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 of 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.