Virginia and the Birth of Corporate Law
posted by Nate Oman
I enjoy reading local history, and one of the great advantages of living a mile from Jamestown, Virginia is that lots of people have written about my local history. In addition to stories of starving colonists and massacred (and massacring) Indians, Jamestown is also a story of corporate law. The colonization of America was not a government funded operation. Rather, it was an exercise in high risk venture capital, funded by private investors in the hope of big profits. In the end, of course, the Virginia Company failed to pay big and the government ultimately bought the investors out, taking over the colony, somewhat like a bail-out of a hedge fund. Along the way, Virginia made some interesting corporate law.
The company’s third charter, in particular, is interesting. Virginia was organized by a royal charter that gave the company a corporate existence, set up its governing structure, and defined the scope of its business. Originally, the number of investors was sharply limited and the governing structure was largely independent of their control. The company found it necessary, however, to return to king and parliament to tinker with their charter. The third charter was provoked by the desire of the company to extend its jurisdiction to take in most of the western Atlantic. In particular, they wanted control of Bermuda, where a Virginia-bound ship had wrecked, living about 120 colonists to live on the island for nearly a year while they built a ship to take them to Virginia. (The incident served as the inspiration for Shakespeare’s play The Tempest.) The new charter, however, did several things beyond giving the company control over “The Devil’s Isles.”
First, it massively broadened the investor base of the company, essentially creating a market in Virginia Company shares where none had existed before. Second, it revamped the governance structure so that the board of governors was elected by the shareholders rather than being appointed by the crown. Thirdly, and most interestingly in my view, it dispensed with the oath of supremacy for investors. This meant that Catholics would be allowed to buy shares in good conscience. The last move is interesting because while the colony remained militantly Protestant and anti-Catholic (or at least anti-Spanish), the innovation does mark the beginning of a shift toward a view of commerce as a realm in which religious differences need not be an impediment to peaceful cooperation. A small move, to be sure, but done several decades before the Peace of Westphalia, it was a not insignificant innovation.
August 28, 2007 at 7:47 am
Posted in: Corporate Law, History of Law
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Patrick S. O'Donnell - August 28, 2007 at 8:48 am
Regarding the third point which we might, broadly, put under the heading of religious toleration: This may have been an innovation of sorts, but certainly there was precedent for this well before the Peace of Westphalia, and perhaps it provided inspiration for this part of the Virginia Company’s charter; for example, in the work of the sixteenth-century exponent of “absolute” monarchy, Jean Bodin, a preliberal and nondemocratic theorist. One political if not economic rationale for Bodin’s *Les six livres de la republique* (1576) was the toleration of religious diversity. As Stephen Holmes writes, “Ordinary men and women in sixteenth-century France did not understand the need for separating religious and political allegiances. Many preferred civil war to sharing their country with heretics.” Holmes continues:
“The *Republique* issues a plea that ‘no man be forbidden the private exercise of such his religion’ (IV,7,539). The king should cease attempting to save souls, punish heretics, or eliminate religious dissonance. Such futile efforts only undermine political order and provoke rebellion. Sovereign authority should lower its sights, resting satisfied with the lesser goal of establishing a modus vivendi between conflicting groups. [....] Instead of attempting in vain to confer moral perfection on his subjects, the monarch should attempt to ‘avoid commotions, troubles, and civil war’ (V,5,598). If the king keeps the peace, his subjects can pursue a wide variety of spiritual objectives. The state is a legal framework in which moral antagonists can coexist and cooperate in secular undertakings. Sectarian religions can also flourish, but only so long as they adapt themselves pliantly to the rules of peaceful coexistence.” Bodin set the stage for Liberal toleration in as much as he recognized that “repression is to be avoided, if at all possible, because it is self-defeating.”
Bodin’s views are rather remarkable for his time and place: “Against zealots of all denominations, Bodin–who may or may not have been a believer–argues that tolerance for religious diversity does not necessarily imply personal indifference to religion. Deep devotion does not necessarily require a rabid persecution of nonbelievers. Not only political power, but even the piety of the prince, can survive a reform that leaves religion up to individuals.”
Please see Holmes’ brilliant chapter, “The Constitution of Sovereignty in Jean Bodin,” in his Passions and Constraint: On the Theory of Liberal Democracy (1995), 100-133.
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