Stephen Bainbridge is the William D. Warren Distinguished Professor of Law at UCLA School of Law. This post is based on his recent article.
I recently posted on SSRN an article The Law and Economics of An Act to Encourage Privateering Associations that examines New York’s 1814 Act to Encourage Privateering Associations, the second general incorporation statute in U.S. history and a unique example of early industrial policy designed to facilitate private maritime warfare. The article situates the 1814 Act within the broader context of the War of 1812, examining the costs, risks, and organizational challenges that made both the privateering business and incorporation of that business attractive to potential investors. This early experiment in using incorporation to advance public policy objectives through private initiative offers valuable insights into both the historical development of American corporate law and the relationship between legal innovation and economic development in the early Republic.
The Business of Legalized Piracy
To understand the 1814 Act, we must first understand privateering itself. Privateers were privately owned ships, armed and equipped by their owners rather than the government, but authorized by letters of marque and reprisal to prey on enemy shipping. Unlike pirates, privateers operated under strict government regulation, posting bonds and bringing captured vessels before admiralty courts for legal adjudication before selling ships and cargo for profit.
The economics of privateering were brutal. Outfitting a dedicated privateer cost around $40,000—a massive sum in 1814. The business model was simple but risky: cruise the seas hunting for enemy merchant vessels while avoiding British warships, capture prizes, and sail them to port for sale. Under standard agreements, crews received half the net profits while ship owners split the remainder.
The risks were enormous. Treasury Secretary Albert Gallatin compared privateering to a lottery, noting the “uncertain and improbable chance of a large, easy profit.” Statistics bear this out: an estimated 73% of privateers commissioned in 1812 failed to earn a profit. Many ships were captured or destroyed by the Royal Navy, with crews facing imprisonment in the notorious Dartmoor Prison. Yet the potential rewards were spectacular—the most successful privateer, the Surprize, captured 37 enemy vessels.
Three Theses
Through detailed analysis of the Act’s provisions and historical context, this article advances three principal arguments. First, it demonstrates that early general incorporation statutes functioned as deliberate instruments of industrial policy rather than neutral procedural mechanisms, with the 1814 Act representing a novel state effort to harness private capital for national defense. Second, it provides insight into the contested evolution of essential corporate attributes by analyzing which features of the modern corporation the Act provided and which it omitted, contributing to ongoing scholarly debates about the truly indispensable characteristics of the corporate form. The statute’s design reveals contemporary understanding of how corporate privileges could encourage high-risk entrepreneurial ventures by providing limited liability, centralized management, and rudimentary asset partitioning. Third, it offers a case study of how economic necessity can drive the functional development of corporate features—particularly asset partitioning and limited liability—even when formal legal architecture remains incomplete. READ MORE
