The Simplified Wealth of Nations of Adam Smith, Book 5, Chapter 1k: Private Copartneries vs Joint Stock Companies
Chapter 1k: Private Copartneries vs Joint Stock Companies
|Private Copartneries||Regulated Companies (corporations)||Joint Stock Companies|
|Capital||draws little capital||draws a lot of capital||draws a lot of capital|
|Management of capital||Done by partners||Done by board of directors||Done by board of directors|
|Transfer shares||need approval from company||no need approval|
|Exiting||can exit and demand payment||cannot demand payment for shares|
|Liability||unlimited||limited to value of shares|
Joint stock companies, established by royal charter or by act of parliament, differ from regulated companies and private copartneries.
- 105 In a private copartnery, no partner without the consent of the company can:
- transfer his share to another person
- introduce a new member into the company
Upon proper warning, each member may:
- withdraw from the copartnery
- demand payment for his share of the common stock from the copartnery
In a joint stock company, on the contrary:
- No member can demand payment for his share from the company
- Each member can, without the company's consent:
- transfer his share to another person, and
- introduce a new member.
- The value of a share in a joint stock is always its market price.
- This is different from the stated value in the stock of the company.
- 106 In a private co-partnery, each partner is bound for the debts of the company to the extent of his fortune.
- "In a joint stock company, on the contrary, each partner is bound only to the extent of his share."
The joint stock company's trade is always managed by a court of directors.
- The court of directors is frequently subject to a court of proprietors.
- But most of those proprietors seldom pretend to understand the company's business.
- When the spirit of faction does not prevail among them, they give no trouble about it.
- They are content to receive yearly dividends as the directors think proper to give to them.
- This total exemption from trouble and risk, beyond a limited sum, encourages many people to become adventurers in joint stock companies.
- They would never hazard their fortunes in any private co-partnery.
- Joint stock companies draw more stocks than any private co-partnery.
- The South Sea Company's trading stock at one time amounted to more than £33,800,000.
- The Bank of England's divided capital is presently £10,780,000.
- The directors of such companies are the managers of other people's money.
- They cannot be expected to watch over it with the same vigilance as the partners in a private co-partnery.
- They are like the stewards of a rich man.
- They think that attending to small matters are not for their master's honour.
- They very easily exempt themselves from attending to such matters.
- "Negligence and profusion, must always prevail, more or less, in the management of the affairs of such a company."
- Joint stock companies for foreign trade seldom were able to compete against private adventurers.
- They very seldom succeeded without an exclusive privilege.
- They frequently have not succeeded even with an exclusive privilege.
- Without an exclusive privilege they commonly mismanaged the trade.
- With an exclusive privilege they both mismanaged and confined it.
Next: Chapter 1l: Royal African Company