The Bubble Act 1720 (also Royal Exchange and London Assurance Corporation Act 1719) was an Act of the Parliament of Great Britain passed on 11 June 1720 that incorporated the 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 which shares of the company's stock can be bought and sold by shareholders. Each shareholder owns company stock in proportion, evidenced by their shares (certificates of ownership). Shareholders are ...

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 s ...

. 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 The South Sea Company (officially The Governor and Company of the merchants of Great Britain, trading to the South Seas and other parts of America, and for the encouragement of the Fishery) was a British joint-stock company founded in Ja ...

a monopoly over British trade with

South America South America is a continent entirely in the Western Hemisphere and mostly in the Southern Hemisphere, with a relatively small portion in the Northern Hemisphere at the northern tip of the continent. It can also be described as the sout ...

until the 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, an attempt to prevent smaller non-charter companies from forming and so reduce the importance of Parliament in regulating businesses; or the

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 The Act was repealed in 1825.

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 shareholders that is incorporated and granted rights (often exclusive rights) by royal charter (or similar instrument of government) for the purpose of trade, exploration, and/or coloni ...

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 enterpr ...

and the London Assurance Corporation were granted charters to write

marine insurance Marine insurance covers the physical 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 o ...

. Until 1824, they remained the only joint-stock firms with such a charter.

Background

Contents

See also

References

Further reading