the Emergence of the Company Limited by Guarantee in Company Law
Posted by William Byrnes on August 29, 2013
The full article may be downloaded at > William Byrnes’ academic SSRN page <
The origin of the company limited by guarantee is nearly impossible to pinpoint. While some experts believe that this type of business form sprang into being overnight, it is more likely that the company limited by guarantee slowly developed over centuries of time. The origins of the company limited by guarantee have a fuzzy existence, which is likely attributable to the notion that this business form is comprised of bits and pieces of other business forms that existed in early English history.
The most plausible origin of the company limited by guarantee stems from fire insurance, which came into existence after the Great London Fire of 1666. An excerpt from an eyewitness’s diary describes the tragic fire: “I saw a fire as one entire arch of fire above a mile long: it made me weep to see it. The churches, houses are all on fire and flaming at once, and a horrid noise the flames made and the cracking of the houses.” For this type of tragedy to occur at a time when England businesses and communities were beginning to flourish was a great devastation of utmost significance. The Great London Fire may have been the catalyst that drove individuals to find better ways of insuring themselves in the future, should another similar tragedy occur in the future. Individuals had to protect their future economic interests, and the emergence of a company that allowed individuals the ability to conduct business as needed while still providing them with the limited liability necessary to protect against future damages may have been the foundation of the company limited by guarantee.
In order to understand the modern day characteristics of the company limited by guarantee, the characteristics of its members, the relations of its members to the company and the relations to each other, it is necessary to first understand the historical origin of the United Kingdom (“UK”) business organization of the company. This article will begin by studying the history of the company limited by guarantee by analyzing the following types of businesses: (1) partnerships; (2) trusts; (3) charitable trusts; (4) assurance companies; (5) joint stock companies; and (6) investment companies.
The second part of this article focuses on explaining and examining the company limited by guarantee, including the evolution of the English Company from the Chancery partnership and trust, to the joint stock company’s statutory recognition and devolvement from the partnership. This section will also analyze the evolution and statutory recognition of the company limited by guarantee, and generally distinguish its characteristics from the company limited by shares.
The third part of this article includes an in-depth statutory comparison of the modern day (1) company limited by shares; and (2) company limited by guarantee.
Although it is likely that the main foundation of the company limited by guarantee stems from fire insurance, the origin of other historic business types must first be discussed in order to envision the larger picture – including all of the major business forms that existed in early English history – in order to pinpoint the exact origins of the modern day company limited by guarantee.