Old corporations
The idea of a body that outlives its members is old. Medieval European towns, guilds, monasteries and universities held charters that let them own property and make rules as a group. For centuries, though, a charter was a privilege handed out by a ruler, usually with a monopoly attached and a purpose the ruler approved.
The great trading companies of the early 1600s were creatures of this kind. The English East India Company received its charter from Elizabeth I in 1600, and two years later the Dutch government chartered the Dutch East India Company, known by its initials VOC. The VOC added something important. Investors could not pull their money out whenever they liked, because its capital was permanent, so investors traded their shares instead, and a busy market in VOC shares grew up in Amsterdam. That is one reason the VOC is often called the first modern publicly traded company.
The VOC was also a government in all but name. Its charter let it wage war, build forts and make treaties in Asia. In 1621 its forces under Jan Pieterszoon Coen conquered the Banda Islands, the only source of nutmeg, and most of the islanders were killed, enslaved or driven out. The episode is an early warning about what happens when a business answerable only to its investors is given the powers of a state over people who have no say.
Bubbles and backlash
In 1720 the South Sea Company in Britain promised fabulous returns, its share price soared and then crashed, ruining many investors. That same year Parliament passed what became known as the Bubble Act. It required a royal charter or an act of Parliament for a joint-stock company, which made it much harder to form one. The act stayed on the books until 1825, and its shadow made British lawmakers wary of companies for a century.
Charters in the new United States
American suspicion of corporations ran deep. After independence, state legislatures granted corporate charters one at a time, by special act, for banks, bridges, turnpikes and canals. Charters often limited a company's size, purpose and lifespan.
In 1816 New Hampshire tried to turn Dartmouth College, chartered by the king in 1769, into a public university under state control. The college's trustees sued. Their lawyer, Daniel Webster, told the Supreme Court: "It is, Sir, as I have said, a small college. And yet there are those who love it." In 1819 the Court ruled that a corporate charter was a contract the state could not alter on its own. The decision gave corporations security against legislatures. States answered by writing clauses into new charters reserving the right to amend them.
Incorporation for everyone
Special charters had a problem: they went to people with friends in the legislature. Reformers in the age of Andrew Jackson attacked them as privileges for the connected. The answer was general incorporation. New York passed a general law for manufacturing companies in 1811, and over the following decades state after state followed. Under these laws anyone meeting set conditions could incorporate by filing papers, with no special vote needed. Britain moved the same way, allowing companies to form by registration in 1844 and granting them limited liability in 1855.
The race between the states
Because each American state writes its own corporate law, states compete for companies and their fees. In 1889 New Jersey changed its law to allow corporations to own stock in other corporations, which made holding companies easy and drew in many of the era's great trusts. When New Jersey tightened its rules in 1913, under Governor Woodrow Wilson, many firms moved to Delaware, which had passed a flexible law in 1899. Today Delaware is home to most large American public companies.
Scholars disagree about what this competition does. One camp calls it a race to the bottom, in which states compete for charters by loosening the rules that restrain managers. Another calls it a race to the top: investors can see which state a company picks, and states that let managers abuse shareholders should lose business. The debate is alive. In 2024 Tesla moved its legal home to Texas after a Delaware court struck down Elon Musk's pay package, and Delaware amended its law in 2025 partly to keep other companies from following.
Worked example
Picture two founders, two centuries apart. In 1800 a group of merchants want to build a canal. They must persuade the state legislature to pass a special act, which sets the canal's route, caps its tolls, and gives the company perhaps fifty years of life. Rivals with better political connections might block them, and the charter is a public bargain: the company gets privileges, the public gets a canal on stated terms.
In 2020 two programmers in Ohio want to start a software company. They fill in a form online, pay a fee and choose Delaware law, because investors know it well. Nobody asks what public purpose the company serves, and it can live forever. The change brought freedom and fairness, since no one needs a patron to start a business. It also dropped the old habit of asking what the public gets in return, a question this course keeps returning to.