Another misconception is the idea that the LLC was purely a product of Western Europe. The creation of the LLC, however, was decidedly not a European phenomenon at all, even if certain elements of its creation occurred in British boardrooms. Instead, the LLC was a product of global competition and exchange. It was inextricable from the histories of powerful companies based in Beirut. Thus, to fully understand the history of the corporation, one must also venture outside of Western Europe and look at global patterns fueled by economic and ontological shifts in banking and finance.
The Limited Corporation and Capitalism
This short blogpost highlights the business practices of Levantine family companies by tracing one small part of the global history of twentieth-century capitalism — the history of the limited liability company. In doing so, it illustrates that business competition and exchange led to the production of a common global shift to the abstraction and standardization of the company.
This idea of capitalism as abstraction corresponds to Caitlin Rosenthal’s pithy description of capitalism in her recent Q&A. I argue here that throughout the late-nineteenth- and early-twentieth centuries, a small class of global businessmen (and sometimes women) accumulated large amounts of capital. One consequence of this process was the creation of quantitative figures out of qualitative values.
That is, just as capitalists began to think of laborers by their numerical values, as Rosenthal describes, capitalists also began to think of their companies as objects divorced of their human participants by World War I. Superficially, the driving force behind the commodification of the company form were judges’ rulings that imbued companies with legal personhood. But by the early 1920s, the idea of the limited liability corporation assumed not just separation in law. Widespread legal separation rested upon the commodification of the corporation in the global popular imagination.
Choosing Un-incorporation
A class of global capitalists with large amounts of capital began to take shape in the mid-nineteenth century. For Levantine family companies headquartered in Beirut, this capital initially came through the production of silk in the region of Mount Lebanon in the early nineteenth century. It was at this time that the companies began to invest in all stages of production, manufacture, and transportation. As the silk industry started to become undersold by Chinese and Japanese silk in the late nineteenth century, the Levantine family companies turned their attention to even further diversifying and integrating their businesses. They invested millions of British pounds in land in the Levant and became the primary shareholders in major manufacturing companies in Britain. British newspapers called them global millionaires, often comparing them to the Rothschilds, the wealthiest families in Europe in the nineteenth century.
A quick look at these families’ record books validates this claim. The Beirutis married royalty, bought up foreign debt bonds, and owned enough capital to crash the French Stock Market in 1881 with a single transaction. With growing capital, they also accumulated immense global social, economic, and political power.
In the 1860s, Levantine companies became major shareholders in nominally British, but majority Levantine owned, trading and manufacturing companies. One of the largest of these companies in the mid-nineteenth century was the Greek and Oriental Steam Navigation Company.
England canonized the Limited Liability Company in the 1844 and 1856 Joint Stock Companies Acts and the Companies Act of 1862. But contrary to the conclusions of the New Institutional Systems theorists, the Levantine members of this company did not consider themselves restrained by Sunni Ottoman law. On the contrary, despite having the opportunity to incorporate under British law, the Levantine companies’ members deliberately chose not to file as an LLC. Instead, these partners encouraged the non-incorporation of the Greek and Oriental Steam Navigation Company as they did their other major Greek and Levantine ventures.
Why did these companies choose not to incorporate when given the option? The leadership of the Greek and Oriental Steam Company agreed that incorporating the company would not work with their business model. Dealing primarily with Eastern Mediterranean silk, cotton, and other futures, the Steam Company accumulated capital though very timely decision-making about shipments of cargo. Given this, the leadership reasoned that the presence of a voting board of directors would slow down decisions and thus lose the company’s competitive edge – one that was preserved by having rapid communication across oceans.
The Levantine companies and their partners in Britain also had another major reason not to incorporate. Many British, transregional, and non-Western companies’ members viewed the commodification and depersonalization of the limited company as a gateway to corruption. Popular opinion mirrored this fear. Authors of newspaper articles, financial reports, and even Victorian novels like Gaskell’s Cranford argued that LLCs would lead to violence. They advised the population to be wary of the LLC: only a capitalist who aimed to exploit under the shield of the company façade would want that kind of protection.
The nonexistence of a popular acceptance of the depersonalized LCC was also apparent in British courtrooms. In the mid-nineteenth century, British judges continued to refer to the singular company with the pronoun ‘theys’ (as opposed to today’s common ‘it’). Even in the case when shareholders incorporated, judges ordered debt be paid from the companies’ members’ own accounts. The limited liability company remained subject to liquidation in the event that creditors of a single shareholder called in debts.
The Standardization and Commodification of the Company
While Levantine family companies remained skeptical of the LLC, their deliberate calculation not to incorporate became more untenable by the end of the nineteenth century. Consequently, the limited liability corporation became a more accepted vision for the shape of the company. As more capital moved into the hands of a small class of capitalists and, subsequently, through new private banks and stock markets, the avoidance of debt repayments became far less defensible. At the same time, as part of the same phenomena, the companies’ members began to view the company as a profit-making machine all of its own.
A major turning point came in 1866. The world watched as the largest and most successful banking company, Overend, Guerney & Co., decided to incorporate in the wake of the international banking panic of 1866. As a result of this banking crisis, shareholders in the British Overend, Gurney & Co, reasoned that they could no longer successfully avoid personal responsibility for high levels of debt.
As capital became concentrated into the hands of trading and manufacturing companies, the effort to “fix in” capital and shelter shareholders started to outweigh the benefits of other needs, like swift decision-making. Levantine companies felt the direct effects of the drastic losses of Overend, Gurney & Co. At that time, Beirut-based companies were major shareholders in The Greek and Oriental Steam Company. Having been instrumental in growing the company and its fleet, the Levantine members had taken on hundreds of thousands of pounds in debt from the British bank Overend, Guerney & Co.
When Overend, Guerney & Co. called in their debts from the Greek and Oriental Steam Company in 1866, the Levantine companies in Beirut became personally liable for uncalled balances, which led to liquidations of their own ventures along the Eastern Mediterranean. Consequently, the leadership of the Greek and Oriental Steam Company later reflected that incorporation might have protected shareholders from these incredible losses of personal finances.
World War I and the Fate of the Unincorporated Company
After the 1866 panic, the next global banking crisis, the Panic of 1907, occurred within a different economic and cultural environment. By the early twentieth century, newspaper articles had ceased talking about the LLC as a tool for corruption and novels no longer associated the LLC with theft and crime. Members of transregional companies had begun to refer to their companies by the pronoun ‘it’, while accountants and lawyers from Belfast to Beirut advertised themselves in the local papers as “specialists in limited liability.”
In 1914, the Levantine companies’ official charter for the Syreo-Ottoman Agricultural Company stipulated that shares were under no circumstances individually divisible and that the individual members were protected from debts of the company as a whole. Furthermore, the creditors holding shares did not have the right to meddle in the affairs of the company nor to put the cash or property of the company under restraint for personal use.
By the end World War I, the corporate model had become widespread in both business practice and in the cultural imaginations of the public. The company had become quantified, family names were erased, and marriages no longer solely dictated partnership. The sheer volume of capital accumulation during the war expediated the drive to consolidate and protect the assets of individual members, creating the commodification of the company that we know today.
About the author: Kristen Alff specializes in the history of the Middle East and North Africa and global political economy. She is interested in explorations of gender, race and the environment in the history of global capitalism. Alff is at work on her first book, Levantine Joint-Stock Companies in the History of Capitalism around the Mediterranean: 1850-1925. It traces the practices of competition and cooperation between joint-stock companies across the Mediterranean, which gave global capitalism its shape. Her second book investigates the evolution of land sales between Levantine companies and Zionist purchasers in Palestine between in the nineteenth and twentieth centuries. Alff’s work on Levantine companies has appeared in Comparative Studies in Society and History and Enterprise and Society.
Cover Image: Levantine Family company prior to World War I
- Timur Kuran, The Long Divergence: How Islamic Law Held Back the Middle East. Princeton, NJ: Princeton University Press, 2011.
- Paddy Ireland, “Capitalism without the Capitalist: The Joint Stock Company Share and the Emergence of the Modern Doctrine of Separate Corporate Personality,” Journal of Legal History 17, no. 1 (1996).