The Emergence of the Corporate Form

Giuseppe Dari-Mattiacci, O.C. Gelderblom, J.P.B. Jonker, Enrico Perotti

Research output: Contribution to journalArticleAcademicpeer-review


We describe how, during the 17th century, the business corporation gradually emerged in response to the need to lock in long-term capital to profit from trade opportunities with Asia. Since contractual commitments to lock in capital were not fully enforceable in partnerships, this evolution required a legal innovation, essentially granting the corporation a property right over capital. Locked-in capital exposed investors to a significant loss of control, and could only emerge where and when political institutions limited the risk of expropriation. The Dutch East India Company (VOC, chartered in 1602) benefited from the restrained executive power of the Dutch Republic and was the first business corporation with permanent capital. The English East India Company (EIC, chartered in 1600) kept the traditional cycle of liquidation and refinancing until, in 1657,the English Civil War put the crown under strong parliamentary control. We show how the time advantage in the organizational form had a profound effect on the ability of the two companies to make long-term investments and consequently on their relative performance, ensuring a Dutch head start in Asian trade that persisted for two centuries. We also show how other features of the corporate form emerged progressively once the capital became permanent. (JEL: G30, K22, N24).
Original languageEnglish
Pages (from-to)193-236
Number of pages44
JournalThe Journal of Law, Economics, and Organization
Issue number2
Publication statusPublished - 24 Mar 2017


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