The formative years of Company Law, 1844-1856
This article looks at the limited liability company model, which today is regulated by the Companies Act of 1995, and traces briefly its direct legislative origins.
One can trace forms of partnerships found in those ancient societies which allowed their citizens to contract and to carry on trade. It takes little imagination to realise that these older societies likely quickly identified the potential benefit of having persons joining together to pursue an activity or a particular transaction.
The inclination towards acting in concert and pooling resources is evidenced not just in Roman and ancient Greek law and practice but can be traced back to earlier times. Our company model has a less impressive and archaic pedigree, and its origins only go back to the first part of the 19th century.
Modern Maltese company law has a relatively short history starting with the Commercial Partnerships Ordinance of 1962, which was a largely home-grown product. Although expressly modelled on the English Consolidated Companies Act of 1948, it was not a mere copy.
A strategic and policy decision had been taken that Maltese company law should follow English law, cutting off the traditional legal links and cultural similarities shared with continental law and practice. These often imposed a formal, cumbersome and time-costly procedure which included a notarial act and approval by the Commercial Court.
The Maltese drafters were intent on promoting a more extensive use of the private limited liability company. In this, they amply succeeded, and this corporate vehicle has grown to become by far the most common and popular form of doing business today and the motor of the local economy. The Maltese company is easy and inexpensive to set up and is a flexible and resilient mechanism for an unending list of activities and purposes.
The same model more or less exists in many Commonwealth countries, such as Australia, Canada and New Zealand, which have adopted English company law principles and concepts in their own national laws.
Two laws may rightfully claim to represent the formative years of the English private limited liability company model, later also borrowed by the 1962 Ordinance and the Companies Act 1995. They are the two Joint Stock Companies Acts of 1844 and 1856, essential building blocks, incorporating several ingenious and creative features many of which remarkably survive to this day. We owe much to their ingenious drafters. There were other laws, but their impact was comparatively minor.
The 1844 Joint Stock Companies Act
This pioneering Act from 1844 set up the Registrar of Joint Stock Companies and opened up companies for everybody by way of registration and the publication of corporate documents. Companies were no longer limited to a privileged few able to conjure up Royal Charters and Parliamentary Acts.
However, perhaps revealing initial hesitation and uncertainty regarding these new novel measures, the Act imposed a cumbersome mandatory registration procedure consisting of two stages: first, a provisional registration for certain designated purposes, followed by a second stage at the end of which registration became final and definite.
The 1856 Joint Stock Companies Act
The 1856 Act further consolidated the foundations of modern company law, abandoning the cumbersome two-stage registration procedure, and making registration a simple, inexpensive and straightforward procedure involving the payment of a small fee.
It now also required the registration of a simple statutory document called the ‘memorandum’. Companies could also register internal rules known as ‘articles of association’, or else adopt a set of model articles conveniently set out for the first time in the Act itself. This law also gifted shareholders the huge advantage of limited liability, which was a highly controversial step for the time. Henceforth, the word “limited” was to be added to the company name as a warning to third parties.
At the end of the registration process, the Registrar would issue a certificate of incorporation, upon which the new company - now enjoying a separate legal personality - could start operating. At first limited liability did not extend to banking and insurance companies.
Concluding points
Companies were the product and instrument of economic liberalism and laissez-faire. Company law allowed companies to be formed and awarded them a separate legal personality through the registration device which secured clarity, certainty and continuity.
The first companies were known as ‘joint stock companies’, usually very big undertakings carrying on substantial and risky enterprises such as shipping, international trade and canal-building. Later, the term was changed to just ‘companies’. Smaller companies too started being set up and the original Registrar of Joint Stock Companies was eventually renamed the Registrar of Companies.
Company law is a part of public law and the Registrar represents the State. Today the Registrar exercises several powers and controls that would greatly surprise the original English drafters.
David Fabri LL.D., Ph.D. (Melit.) has practised company law since 1980 and has lectured and written on the subject since 1994. His book Studies in Maltese Company Law shall be published soon. He has organized an annual conference on company law with the Chamber of Advocates for the past 20 years.