How Companies Evolved Throughout the Years and How They Should be Managed in 2021

Kirill Zheleznov, Enty CEO
Oct 27, 2020 · 7 min read

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In the last two decades, many industries have been experiencing rapid, massive, and sometimes devastating changes. Old businesses have been working to utilize new technologies in order to achieve better results and new industries emerged completely unexpected for most of us.

Airbnb revolutionized the hospitality industry, Uber and Lyft have done to the transportation industry. How Spotify changed the music industry for both industry professionals and the final customer. As technology changes, so do the industries that use it. Let's just roll 10 years back, can you imagine Lady Gaga performing live inside World of Warcraft? Or another example outside the entertainment industry, could you imagine so many companies switching to remote work with ease in a matter of days, without even thinking about going one last time to the office.

Mobile devices and cloud services are piloting major industry shakeups as they either find their way into new markets or change the way people interact with a market. However, a whole lot of processes stayed the same not for 20 but for more than 50 years, while technology allows us to make massive advancements to the way companies are managed.

In this article, we would like to share our approach to company management and how enty aims to help companies make more convenient and up to date.

How Did Companies Form the Way We Know Them Today?

First Companies

First, we would like to briefly go over the history of companies and how they formed. The word 'company' is derived from the Latin word (Com = with or together; panis = bread), and originally referred to an association of persons who took their meals together. The company has the most striking features of being a distinct legal personality, perpetual succession, the easy transferability of shares, limited liability, and its centralized and democratic governance.

The very early form of organizations called Shreni have been noticed in India in the eighth century BC. Those were the first firms that could independently enter into contracts or own property, which also meant they could sue and be sued. Basically, it had most of the features applicable to modern companies.

First Joint-Stock Companies

As many forms continued to develop, companies progressed to become more organized, that's when joint-stock companies started to emerge. Finding the earliest joint-stock company is a matter of definition. Most people take Société des Moulins du Bazacle or Bazacle Milling Company as the first joint-stock company. Around 1250, 96 shares of the company were traded at a value that depended on the profitability of the mills the society owned, making it probably the first company of its kind in history.
But examples much closer to companies of today came later. And most state the Company of Merchant Adventurers to be the earliest joint-stock company recognized in England — chartered in 1553 with 250 shareholders.

Almost at the same point in time, in 1602, the Dutch East India Company issued shares that were made tradable on the Amsterdam Stock Exchange. That invention enhanced the ability of joint-stock companies to attract capital from investors, as they could now easily dispose of their shares. In 1612, it became the first 'corporation' in intercontinental trade with 'locked-in' capital and limited liability.
Transferable shares often earned positive returns on equity, which is evidenced by investment in companies like the British East India Company, which used the financing model to manage trade in India. Joint-stock companies paid out divisions (dividends) to their shareholders by dividing up the profits of the voyage in the proportion of shares held. Divisions were usually cash, but when working capital was low and detrimental to the survival of the company, divisions were either postponed or paid out in remaining cargo, which could be sold by shareholders for profit.

As a result of the rapid expansion of capital-intensive enterprises in the course of the Industrial Revolution in Britain, many businesses came to be operated as unincorporated associations or extended partnerships, with large numbers of members. Nevertheless, membership in such associations was usually for the short term so their nature was constantly changing.

Consequently, registration and incorporation of companies, without specific legislation, was introduced by the Joint Stock Companies Act in 1844. Initially, companies incorporated under this Act did not have limited liability, but it became common for companies to include a limited liability clause in their internal rules. In the case of Hallett v Dowdall, the English Court of the Exchequer held that such clauses bound people who have notice of them.

The Joint Stock Companies Act 1856 provided for limited liability for all joint-stock companies, among other things, that they included the word "limited" in their company name. The landmark case of Salomon v A Salomon & Co Ltd established that a company with legal liability, not being a partnership, had a distinct legal personality that was separate from that of its individual shareholders.

Building a Legal Framework for Companies

With the development of companies, a special legal framework became a necessity. The special legal framework and body of law that specifically grants the corporation legal personality, and it typically views a corporation as a legal entity or a moral person that shields its owners from "corporate" losses or liabilities. It furthermore creates an inducement to new investors (marketable stocks and future stock issuance).

Corporate statutes typically empower corporations to own property, sign binding contracts, and pay taxes in a capacity separate from that of its shareholders, who are sometimes referred to as "members". The corporation is also empowered to borrow money, both conventionally and directly to the public, by issuing interest-bearing bonds. Corporations subsist indefinitely; "death" comes only by absorption (takeover) or bankruptcy.
    As the corporation is an abstraction, hence It has no mind of its own any more than it has a body of its own — the directing will must consequently be sought in the person of somebody chosen by owners of the company.
    This 'directing will' is embodied in a corporate Board of Directors. The legal personality has two economic implications. It grants creditors (as opposed to shareholders or employees) priority over the corporate assets upon liquidation. Second, corporate assets cannot be withdrawn by its shareholders, and assets of the firm cannot be taken by personal creditors of its shareholders. The second feature requires special legislation and a special legal framework, as it cannot be reproduced via standard contract law.

    Let's stop here for a second and dive a little deeper into the subject.

    What didn't change about companies and perhaps will never change?
    There are several key attributes but one always stays the same. The company is an entity that unites the capitals of several individuals or other entities with the goal to multiply this capital pool.

    Right, but which aspect of the company changed the most?

    Here again, you will be able to provide around a bazillion answers. However, there is one vital and obvious difference that might not be seen right away — a massive change in the way companies are managed. Back when legal entities only started and even in the later years, the management board of a company had a far bigger influence on the company than it has now. The reason is simple — in the past, actual owners (shareholders) had limited power to influence the company, express, and execute their will due to the state of technology and law at that moment.

    Right now, using automatization tools and fractional ownership the directing can be expressed by shareholders more efficiently. We have finally reached the point when we truly have flexible instruments to manage any legal entity. But, most companies still have to live, think, and comply with some principles that might seem outdated or even medieval. Which in some cases, might lead to some unpleasantries
    Throughout the 19th and 20th centuries, special legislation for companies was developed in most jurisdictions. However, there were only minor changes to these regulations ever since, and companies stayed almost the same since then while processes inside companies evolved massively since then.

    Join Enty, if you are looking to build a company in a new era and manage it in an automated way (without slaying dragons).
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