The Bubble Act of 1720 was a British statute that banned the formation of joint-stock companies unless they held a royal charter or an act of Parliament, criminalized the trading of shares in unauthorized ventures, and imposed the ancient penalty of praemunire on anyone who broke its terms. Passed on 11 June 1720 during the frenzy around the South Sea Company, it stayed on the books for more than a century, reached the American colonies in 1741, and was finally repealed in 1825.
Why Parliament Passed It in 1720
The Act came out of the South Sea Bubble. The South Sea Company had been founded in 1711 to swap government debt for shares in a firm holding trading rights in Spanish South America. In 1719 it bid for an even larger slice of the national debt and financed the deal through public share subscriptions. The share price ran from roughly 128 in January 1720 to over 1,000 by August.1Britannica. South Sea Bubble
That rise pulled in imitators. Nearly 200 speculative ventures launched in the same period, many with no real business, all competing for the same investor cash. The South Sea Company’s directors saw these competitors draining liquidity from the market and pressed Parliament to shut them down.2Center for the Study of Economic Liberty. Two Bubbles and a Plague A parliamentary committee in February 1720 examined the flood of new subscriptions and found many opportunistic or fraudulent.3Queen’s University Centre for Economic History. The Anatomy of a Bubble Company: The London Assurance in 1720
The result was catalogued as 6 Geo. 1 c. 18. Its formal title was long, but its everyday name captured its target: bubble companies. Notably, Parliament passed it while South Sea shares were still climbing. The crash came later that year, and by December shares had fallen back to 124, nearly erasing the entire year’s gains.1Britannica. South Sea Bubble
What the Act Banned
The Bubble Act reached anyone who operated as a corporate body, raised transferable stock, or traded shares in a venture that lacked a royal charter or an act of Parliament. The 1825 repeal statute quoted the original language, describing the prohibited conduct as “acting or presuming to act as a Corporate Body” and “raising or pretending to raise transferrable Stock or Stocks” without legal authority.4vLex United Kingdom. Bubble Companies, etc. Act 1825 Investors could not pool capital, issue shares to the public, or let those shares change hands unless the Crown or Parliament had specifically approved the venture.
The Act also caught groups that dug up old or lapsed charters and repurposed them for unrelated business, closing what would otherwise have been an obvious loophole. Anyone acting under a charter that had gone void through disuse fell inside the ban.
The restriction on transferable shares was the piece that mattered most to the speculative market. Parliament saw easy buying and selling of stakes in unvetted companies as the engine of the mania. Cut off that liquidity and the bubble companies could not draw fresh waves of investors bidding up prices.
Adopting a common seal counted too. In 18th-century corporate law, the common seal was one of the powers considered essential to a corporation.5Michigan Business & Entrepreneurial Law Review. Of Bodies Politic and Pecuniary: A Brief History of Corporate Purpose An unauthorized group that used one was, in effect, claiming corporate status it did not possess, and the Act treated that claim as illegal on its face.
The Penalties
The penalties were designed to terrify. Anyone found guilty of running or joining an unauthorized corporate venture faced praemunire, an ancient sanction originally aimed at people who appealed to foreign authority over the English Crown. Attaching it to a commercial offense placed bubble promoters in the same legal category as historical challengers of English sovereignty.
Praemunire carried three consequences, though legal authorities of the era disagreed on the exact scope:
- Loss of royal protection. The offender was “put out of the King’s protection” and could not invoke the Crown’s legal system to defend their own rights.
- Forfeiture of all lands, tenements, goods, and personal property to the Crown.
- Imprisonment. Some authorities said “during the King’s pleasure,” others said for life. English law left the question unresolved.6The University of Texas at Austin. Rationale of Punishment – Book V, Chapter V
Brokers and intermediaries faced a separate track. Any professional who arranged the purchase or sale of shares in an unauthorized company was subject to a fine of £500 per transaction, a ruinous sum in 1720 for all but the wealthiest. Convicted brokers were also permanently barred from practicing their trade. The Act punished the whole chain of a speculative transaction, from promoter to middleman to investor.
Who Was Exempt
Companies that held a valid royal charter or parliamentary authorization sat outside the Act entirely. The South Sea Company, the East India Company, and other long-established trading firms carried on as before.
The Act also secured charter privileges for two new insurance firms: the Royal Exchange Assurance and the London Assurance. Both received charters granting them a monopoly over marine insurance as joint-stock enterprises, shutting other incorporated or partnership firms out of the sector. Private individual underwriters could continue, but no competing joint-stock insurer could enter the market.7Queen’s University Belfast Research Portal. An Incomplete Revolution: Corporate Governance Challenges of the London Assurance Company and the Limitations of the Joint-Stock Form, 1720-1725
This was not a gift. Each company offered the government £300,000 in exchange for its charter. The London Assurance later negotiated its sum down to £150,000 when the post-crash financial crisis made the full payment impossible.8Internet Archive. The London Assurance, 1720-1920 The government was regulating the market and selling monopoly access to it in the same statute.
How Often It Was Enforced
For all its fearsome penalties, the Bubble Act was barely enforced. In August 1720, under pressure from the South Sea Company’s directors, the government issued writs of scire facias against several unauthorized companies. That brief flurry of enforcement fed the broader market panic that autumn but did not become a pattern.
After the initial crisis, the Act fell into disuse for decades. When the Attorney General tried to prosecute unincorporated companies with freely transferable shares in 1807, the court in R v Dodd (1808) dismissed the applications on the ground that the Act had not been invoked for 87 years. Later cases near the end of the Act’s life did find similar companies illegal, producing a short and contradictory burst of enforcement that helped push Parliament toward repeal.
The gap between the statute’s sweeping prohibitions and its near-total lack of enforcement tells a familiar story. The Act gave the Crown enormous discretionary power to shut down any unauthorized venture, but that power was exercised selectively, if at all. Companies that avoided political attention could operate in a gray zone for years.
Extension to the American Colonies
In 1741, Parliament extended the Bubble Act to “all and every of his Majesty’s dominions, colonies and plantations in America” through 14 Geo. 2, c. 37.9IDEAS (RePEc). Consequences Unintended: The Bubble Act and American Independence The immediate trigger was the Massachusetts Land Bank, which in September 1740 had begun issuing £50,000 in notes without legal authorization. Governor Jonathan Belcher opposed the bank, declared its notes worthless, dismissed officeholders who accepted them, and refused to license businessmen who tried to use the notes as currency.10Telegram.com. Turmoil of 1740 Echoes Today Parliament shut the bank down after barely a year.
The colonial extension reached further than one Massachusetts bank. It restricted the ability of colonists to form joint-stock companies or create financial instruments at a time when the colonies were already chafing under British monetary policy. Some historians place the Bubble Act in the chain of commercial grievances behind the American Revolution.9IDEAS (RePEc). Consequences Unintended: The Bubble Act and American Independence
Repeal in 1825 and What Replaced It
By the early 19th century, the Act had become an obstacle to the industrial economy rather than a protection against speculation. Britain’s manufacturing and trading sectors needed corporate structures to raise capital at a scale partnerships could not provide, and requiring a royal charter or act of Parliament for every new joint-stock company was too slow and too expensive for a modernizing economy.
Parliament repealed the Bubble Act in 1825 through 6 Geo. 4 c. 91. The repeal also granted the Crown additional powers to issue charters of incorporation to trading and other companies, easing the path toward corporate formation without fully abandoning government oversight.11The Statutes Project. 1825: 6 George 4 c.91: Repeal of the Bubble Act
Repeal alone did not create a modern corporate framework. That came with the Joint Stock Companies Act of 1844, which replaced the old charter requirement with incorporation by registration. Under the 1844 Act, promoters could form a company by filing specific information with a new Registrar of Joint Stock Companies: the company’s name, location, and purpose; the amount of its capital; the number of shares; the names of subscribers and directors; and a copy of any prospectus or advertisement addressed to the public. Once the Registrar issued a Certificate of Complete Registration, shares could be legally sold.12SMU Scholar. The British Heritage of Securities Legislation in the United States
The Bubble Act had treated corporate status as a privilege dispensed by the Crown to a select few. The 1844 Act treated it as a right available to anyone willing to comply with disclosure requirements. That principle, registration and transparency rather than royal permission, became the foundation of modern company law across the English-speaking world.