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The rowing scale and scope of business activity resulting from major developments in transportation, communications, distribution, and production demanded large amounts of capital, which could best be raised by a corporation. This development made it possible for investors to buy stock in a company that they had no intention of running, thus greatly increasing the amount of capital available to corporations. The efforts by American bankers and shipping agents to accommodate these investors led ultimately to the creation of Wall Street, the capital market centered in New York City through which stocks and bonds could easily be bought and sold. Beginning in 1848 European investors, fearful of the rising threat of political revolution on their own continent, began seeking investment opportunities in the United States. American merchant capitalists, whose shipping interests were being outpaced by government-subsidized British firms, were attracted by the limited- liability benefits of corporate investment and the substantial profits that factories produced, and many shifted their capital from trade to manufacturing.

Woodward (1819) guaranteed the inviolability of a corporation’s charter.īetween 18 the corporation became the preferred method by which to finance and organize a business. The Supreme Court’s ruling in Trustees of Dartmouth College v. Grant (Massachusetts, 1819), established the precept of limited liability, which protected stockholders from financial ruin if a business enterprise failed. States changed their incorporation laws so that the simple payment of a fee, rather than a special act of the state legislature, sufficed to create a corporation. In part these developments grew out of legal changes that made incorporation more attractive. Because an unusual amount of capital was required to build and operate factories, by the 1820s corporations had begun to replace individuals and limited partnerships as the primary mechanism of business ownership. At first confined to the manufacture of textiles and shoes, this system by 1840 had almost completely supplanted the artisanal and putting-out systems. In the 1820s the Industrial Revolution gradually spread from England to New England, where the increased use of machinery and economies of scale gave rise to the factory system. The largest industrial concerns, iron foundries and shipyards, rarely employed more than fifty workers.īetween 18 this situation changed dramatically for two major reasons. The textile and shoe industries relied on the putting-out system, whereby self employed, home-based workers drew their materials from and delivered finished goods to a central warehouse. Most manufacturing concerns were operated by an artisan, who was assisted by one or two apprentices or by family members. These individuals usually owned one or more ships and made all of the decisions in their businesses, though many were assisted by family members or worked in conjunction with a partner or partners. State and federal laws and judicial decisions created a legal atmosphere that favored incorporation, while technological developments and organizational innovations in transportation, communications, and manufacturing made large business enterprises possible as well as profitable.Īt the turn of the century business enterprises in the United States operated on a small scale, and the dominant figures in American commerce were merchant capitalists. Two factors in particular contributed to this development. By the end of the century large corporations dominated many industries in the United States.

When the nineteenth century dawned, corporations were virtually nonexistent, and all business enterprises were relatively small.