Chapter

Company Formation

Mark Freeman, Robin Pearson and James Taylor

in Shareholder Democracies?

Published by University of Chicago Press

Published in print December 2011 | ISBN: 9780226261874
Published online February 2013 | e-ISBN: 9780226261881 | DOI: http://dx.doi.org/10.7208/chicago/9780226261881.003.0003
Company Formation

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Entrepreneurs in the past wishing to establish a company faced a number of important decisions, many of which would have a profound effect on the character and prospects of the concern. The decision whether or not to seek incorporation was perhaps the most fundamental. Incorporation offered legal security for the property invested in a company and could ensure that the liability faced by shareholders would be limited, but the process was expensive and uncertain to succeed. Companies needed to develop strategies for winning the right kind of financial backers. In addition, the size and capital structure, in particular the share denomination and the amount paid up on each share, greatly influenced the kind of proprietary the venture would attract. This chapter explores the processes by which both types of founding document were drawn up. Here, as in other areas of corporate governance, companies varied enormously in their approach to the issue of shareholder participation. The process of company formation also sheds light on the political relationships within a company. The extent to which shareholders were invited to participate in the process by which the founding constitution was drawn up varied considerably from firm to firm. Wherever shareholder interventions are noted in company records, they usually had the effect of increasing shareholder rights and participation.

Keywords: corporate governance; shareholders; decision making; company formation

Chapter.  14764 words.  Illustrated.

Subjects: Economic History

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