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Voting restrictions in 19th-Century corporations: investor protection or consumer protection?

Grant number: 11/11432-3
Support type:Regular Research Grants
Duration: January 01, 2012 - December 31, 2013
Field of knowledge:Applied Social Sciences - Law - Private Law
Principal researcher:Mariana Souza Pargendler
Grantee:Mariana Souza Pargendler
Home Institution: Escola de Direito de São Paulo (DIREITO GV). Fundação Getúlio Vargas (FGV). São Paulo , SP, Brazil


Business corporations in the nineteenth century often departed from the one-share-one-vote rule by limiting the voting rights of large shareholders. These restrictions typically took the form of either an absolute cap on the number of votes per shareholder or a regressive voting scale whereby the number of votes increased less than proportionately to stock ownership. Scholars have described these voting restrictions either as a reflection of political preferences for shareholder democracy or as a contractual approach to minority shareholder protection. These accounts, however, fail to explain the variation in the incidence of voting restrictions across different industries and firm ownership structures, as well as their eventual disappearance from corporate charters over time. In this paper, we advance an alternative economic interpretation for these early voting restrictions as efforts at consumer protection employed primarily by firms that were local service monopolies and collectively owned by their principal customers, none of whom wished the firm to come under the exclusive control of their competitors. To both explore and test this proposition we analyze data on shareholder voting rights in the nineteenth century in the U.S., England, Brazil and Continental Europe. We argue that the prevalence of consumer ownership among early business corporations helps shed light on peculiar aspects of 19th century corporate laws compared to modern practice. While legal and economic scholarship has incessantly focused on the timing and reasons for the separation between ownership and control, the separation between investment and consumption is another major but often overlooked turning point in the history of the business corporation. (AU)

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