TheCorporateCounsel.net

Happy “International Talk Like a Pirate Day” to those who celebrate.  In honor of the holiday, I’m going to do something I rarely do – recommend a law review article to you just because it’s really interesting.  The last time I did this was with Sarah Haan’s remarkable piece on how the rise of women investors in the early 20th century influenced the evolution of modern corporate governance concepts.  Today – in keeping with Talk Like a Pirate Day’s nautical theme – I’d like to recommend Prof. Robert Anderson’s new article, “The Sea Corporation.”

In law school, we were all taught that limited liability and the other attributes surrounding a corporation were unique to that entity and arose in connection with its creation.  This article says that just isn’t the case, and that maritime law’s treatment of ships and their owners was remarkably similar. Here’s an excerpt from the abstract:

Commentators widely attribute the corporation’s success to a set of features thought to be unique to the corporation, including limited liability, transferable shares, centralized management, and entity shielding. Indeed, the consensus among economic and legal historians is that these essential corporate features created a unique economic entity that rapidly displaced the obsolete partnership.

This Article argues that these economic features were not unique to the corporation, nor did they first develop in the business corporation. Over many centuries, the maritime law developed a sophisticated system of business organization around the entity of the merchant ship, creating a framework of legal principles that operated as a proto-corporate law. Like modern corporate law, this maritime organizational law gave legal personality to the ship, limited liability, transferable shares, centralized management, and entity shielding. The resulting “sea corporations” were the closest to a modern corporation that was available continuously throughout the 17th through early 19th centuries in Europe and the United States.

Prof. Anderson’s conclusion is that the independent emergence of this legal model for merchant ships shows that it was external commercial needs that drove the development of the key legal attributes we associate with the corporation. The corporation wasn’t a unique technological development that enabled the industrial revolution, but simply a more versatile version of what the maritime law had already developed.

– John Jenkins