Bubble Act 1720
was an Act
An Act of Parliament is a statute enacted as primary legislation by a national or sub-national parliament. In the Republic of Ireland the term Act of the Oireachtas is used, and in the United States the term Act of Congress is used.In Commonwealth countries, the term is used both in a narrow...
of the Parliament of Great Britain
The Parliament of Great Britain was formed in 1707 following the ratification of the Acts of Union by both the Parliament of England and Parliament of Scotland...
that forbade all joint-stock companies not authorised by royal charter
A royal charter is a formal document issued by a monarch as letters patent, granting a right or power to an individual or a body corporate. They were, and are still, used to establish significant organizations such as cities or universities. Charters should be distinguished from warrants and...
. It was passed on 9 June 1720, and was also known as the Royal Exchange and London Assurance Corporation Act 1719
, because those companies were incorporated under it.
Various motivations have been suggested for the Act. These include the desire to prevent speculation such as that which produced the contemporary South Sea Bubble; an attempt to prevent smaller non-charter from forming and so reduce the importance of Parliament in regulating businesses; or that the South Sea Company itself wanted to prevent other bubbles from forming that might have decreased the intensity of its own. Recent scholarship indicates that the last of these was the cause: it was passed to prevent other companies from competing with the South Sea Company for investors' capital. In fact, the Act was passed in June 1720, before the peak of the bubble. The Act was repealed in 1825.
The most significant provision read:
All undertakings ... presuming to act as a corporate body ... raising ... transferrable stock ... transferring ... shares in such stock ..., either by Act of Parliament or any charter from the Crown, ... and acting under any charter ... for raising a capital stock ... not intended ... by such charter ... and all acting ... under any obsolete charter ... for ever be deemed illegal and void.
Under the terms of the act, the Royal Exchange Assurance Corporation
The Royal Exchange Assurance Corporation, founded in 1720, was a British insurance company. It took its name from the location of its offices at the Royal Exchange, London.-Origins:...
and the London Assurance Corporation were granted charters to write marine insurance
Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination....
. Until 1824, they remained the only joint-stock firms with such a charter.
- R v Cawood (1724) 2 Ld. Raym. 1361, the only prosecution brought under the Act which, according to L.C.B. Gower, (Principles of Modern Company Law, 4th Ed., 31) "decided nothing of importance".