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The Bubble Act 1720 (also Royal Exchange and London Assurance Corporation Act 1719) was an Act of the
Parliament of Great Britain The Parliament of Great Britain was formed in May 1707 following the ratification of the Acts of Union by both the Parliament of England and the Parliament of Scotland The Parliament of Scotland ( sco, Pairlament o Scotland; gd, Pàrlam ...
passed on 11 June 1720 that incorporated the
Royal ExchangeRoyal Exchange may refer to: *North East Quarter, Belfast, a planned city centre development formerly known as Royal Exchange. *Royal Exchange, Dublin, now City Hall, Dublin *Royal Exchange, Edinburgh, now the Edinburgh City Chambers *Royal Exchange ...

Royal Exchange
and London Assurance Corporation, but more significantly forbade the formation of any other
joint-stock companies A joint-stock company is a business entity In law, a legal person is any person A person (plural people or persons) is a being that has certain capacities or attributes such as reason, morality, consciousness or self-consciousness, and be ...
unless approved by
royal charter A royal charter is a formal grant issued by a monarch under royal prerogative as letters patent. Historically, they have been used to promulgate public laws, the most famous example being the English Magna Carta (great charter) of 1215, but si ...

royal charter
. Its provisions were extended later by the Bubble Schemes, Colonies, Act 1740 to include its colonies, particularly Massachusetts. The act gave the
South Sea Company Hall of South Sea House, 1810 File:ShareCertificate SouthSeaCompany 1733.jpg, 1723 pro-forma power of attorney signed by a shareholder of the South Sea Company showing the Company's coat of arms and the Latin motto ''A Gadibus usque Auroram'' ...
a monopoly over British trade with
South America South America is a continent A continent is one of several large landmasses. Generally identified by convention (norm), convention rather than any strict criteria, up to seven regions are commonly regarded as continents. Ordered fr ...

South America
until the
South Sea Bubble South is one of the cardinal direction The four cardinal directions, or cardinal points, are the directions north North is one of the four compass points or cardinal directions. It is the opposite of south and is perpendicular to east an ...

South Sea Bubble
"popped" in Britain's first major stock market collapse.


Background

Various motivations have been suggested for the Act. They include the desire to prevent the speculation that produced the contemporary
South Sea Bubble South is one of the cardinal direction The four cardinal directions, or cardinal points, are the directions north North is one of the four compass points or cardinal directions. It is the opposite of south and is perpendicular to east an ...

South Sea Bubble
, an attempt to prevent smaller non-charter companies from forming and so reduce the importance of Parliament in regulating businesses; or the
South Sea Company Hall of South Sea House, 1810 File:ShareCertificate SouthSeaCompany 1733.jpg, 1723 pro-forma power of attorney signed by a shareholder of the South Sea Company showing the Company's coat of arms and the Latin motto ''A Gadibus usque Auroram'' ...
itself wanting to prevent other bubbles from forming that might have decreased the intensity of its own. Recent scholarship indicates that the last 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.


Contents

The Act declared "illegal and void" all business that raised money or offered shares in the manner of a
chartered company A chartered company is an association with investors or shareholder A shareholder (also known as stockholder) is an individual or institution (including a corporation) that legally owns one or more share (finance), shares of the share capital of ...
without a charter from the royal government. Under the terms of the act, the
Royal Exchange Assurance Corporation The Royal Exchange Assurance, founded in 1720, was a British insurance company. It took its name from the location of its offices at the Royal Exchange, London. Origins The Royal Exchange Assurance emerged from a joint stock insurance enterpris ...
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 by which the property is transferred, acquired, or held between the points of origin and the final destination. Cargo insurance is the sub-branch of marine ins ...
. Until 1824, they remained the only joint-stock firms with such a charter.


See also

* - the only prosecution brought under the Act which, according to L.C.B. Gower, "decided nothing of importance".


References


Further reading

* {{UK legislation Great Britain Acts of Parliament 1720 Repealed Great Britain Acts of Parliament South Sea Bubble 1720 in economics Economic history of the United Kingdom