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Why Were Corporations Formed




Corporations are business entities created by a group of people or investors for the purpose of carrying out business activities, generating profits and providing products or services to customers. They are legally recognized entities that are separate from their owners, which means that they can enter into contracts, own assets, and sue or be sued. The concept of corporations has been around for centuries, but it wasn't until the modern era that they began to play a dominant role in the economy. In this essay, we will discuss why corporations were formed, with a focus on their historical development and the economic, social, and legal factors that contributed to their rise.

The Historical Development Of Corporations

The origins of corporations can be traced back to ancient times, when groups of people formed associations to engage in trade, crafts, or other commercial activities. These early forms of corporations were often based on family or kinship ties and had limited liability, which meant that the members were only liable for their own contributions to the business. However, they lacked the legal recognition and protection that modern corporations enjoy.
The modern concept of the corporation emerged during the Middle Ages in Europe, where guilds and merchant companies became common. These organizations were often granted exclusive rights and privileges by the state, such as the right to trade in certain goods or territories, and were subject to strict regulations and supervision by the authorities. They also had internal governance structures, such as elected officials or councils, that helped to manage their affairs and resolve disputes among members.
In the 17th and 18th centuries, corporations began to take on a more commercial and industrial character as a result of the growth of trade and manufacturing. Companies such as the British East India Company and the Dutch East India Company were created to exploit new markets and resources in Asia and the Americas, and they were granted extensive powers and authority by their respective governments. These companies were often funded by public subscription and operated as quasi-governmental entities, with their own armies, bureaucracies, and legal systems.
During the Industrial Revolution in the 19th century, corporations became even more important as the primary vehicles for organizing and financing large-scale production and distribution. Companies such as the railroads, steel mills, and oil refineries transformed the economy and society by providing cheap and efficient transportation, communication, and energy. They also created new jobs and opportunities for workers, but also introduced new forms of exploitation, inequality, and environmental degradation.

The Rise Of Corporations In The 20th Century

The 20th century saw the continued growth and consolidation of corporations, particularly in the United States, where they became the dominant form of business organization. This was due to a number of factors, including technological advances, legal and regulatory changes, and the globalization of markets and capital.
One of the key drivers of corporate growth was the development of new technologies and industries, such as automobiles, airplanes, electronics, and telecommunications. These industries required large amounts of capital and expertise, which could only be provided by corporations. They also created new opportunities for innovation and entrepreneurship, as well as new forms of competition and cooperation among firms.
Another factor was the legal and regulatory framework that supported the growth of corporations. In the United States, for example, the Supreme Court's decision in Santa Clara County v. Southern Pacific Railroad (1886) granted corporations the same constitutional rights as individuals, including the right to free speech and due process. This decision paved the way for corporations to influence politics and public opinion, and to challenge government regulations that they deemed harmful to their interests.
At the same time, the government also played a role in promoting corporate growth through policies such as antitrust laws, which aimed to prevent monopolies and
promote competition, and tax policies, which favored corporate investment and expansion.

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