When Roman tenants stumbled back into the lobby of their apartment buildings after a night of drinking, they probably threw a few coins into a clay pot by the stairway. If they died of drink (or the lead lined pipes, or the diseases that city life still features), the coins in the pot would pay for their burial — or that of anyone else in the building who died. Such owners of a common fund were “parcenarii” — partners, and the partnership is the oldest form of business entity that involves more than one person or family. Creation of a common fund for a common purpose is a good reason to create a business (or nonprofit, or political, or social benefit) entity.
The idea of an enterprise with its own identity goes back to St. Benedict and his nighttime praying monks (founded in 529 AD, at Subiaco Abbey, in Italy). Their rule of life prohibited (and still prohibits) private property for the individual brothers, so the order’s common funds had common administration, and a common founder. They still call themselves Benedictines. Identity, whether for your music teaching business or for a worldwide mission, is another reason to create a company.
Business enterprises governed by investors stopped being partnerships that died with their members and started becoming corporations in the 17th century, with the foundation of the British East India Company in 1600, and their Dutch rival in 1602. Continuity of ownership, like assembly of capital and an identity that customers can trust, is a common reason for family businesses to organize as entities.
For private companies, the separate enterprise is an asset that can be sold, without renegotiating all contracts, re-registering all rights, and transferring all property separately to a new owner or owners. The Bible talks about a “pearl of great price” that made buying a field with all an owner’s goods worthwhile, and gold miners are still digging up New Guinea. Assembling transferrable wealth is a basic purpose for a business entity.
The state of New York added the law that made modern capitalism possible in 1811, when it limited the liability of corporation shareowners to their investments in the company, instead of making them, like Lloyds of London “names” in insurance syndicates, “liable down to their last collar button” if the common enterprise suffers losses. Risk taking is a lot easier if your risk is not unlimited.
The historical reasons to have companies are still good questions to work through with your co-founders, investors, lawyer, and financial sources:
Why do we need to organize?
What name do we want people to remember, when they think about our venture?
Who will our investors be, as we grow the enterprise?
What will we do, to create social, monetary, or eternal value?
How do we protect ourselves against risks?
If you want help discussing these questions, and deciding on what, whether, and how an entity will help you implement your answers, give me a call at 1-800-630-4780, or email me at email@example.com.