Part 3g of Chapter 1 of Book 5 of The Wealth of Nations Simplified

Private Copartneries vs Joint Stock Companies Icon

August 1, 2021

104 Joint stock companies established by royal charter or by act of parliament differ from:

  • regulated companies and
  • private copartneries.

105 1. In a private copartnery, a partner needs the consent of the company to:

  • transfer his share to another person,
  • introduce a new member into the company.

Upon proper warning, each member may:

  • withdraw from the copartnery, and
  • demand payment for his share of the common stock from the copartnery.

In a joint stock company, on the contrary, each member:

  • cannot demand payment for his share from the company
  • 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 2. 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.

107 The joint stock company’s business is always managed by an executive board (court of directors) which is managed by a board of investors (court of proprietors).

But most of those investors 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 executives 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. *

*Superphysics Note: The joint principles of laziness and managed risk or safety leads to the huge size of corporations

They would never hazard their fortunes in any private co-partnery. Thus, 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 [a joint stock?] is presently £10,780,000.

The executives 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.

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