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The Bubble Act (6 Geo. I, c. 18) was passed by the Parliament of Great Britain on 11 June 1720, at the height of the South Sea Bubble, two months before it burst.[1] Its full title is An Act for better securing certain Powers and Privileges, intended to be granted by His Majesty by Two Charters, for Assurance of Ships and Merchandize at Sea, and for lending Money upon Bottomry; and for restraining several extravagant and unwarrantable Practices therein mentioned.[a]BottomryBottomry is an early form of maritime insurance, now defunct. is an early form of maritime insurance. The term Bubble Act appears only rarely in 18th-century sources, and only became popular during the early 19th century.[2]

The Act prohibited the formation of joint-stock companies unless approved by royal charter or Special Act of Parliament.[1][b]A joint-stock company is one which issues shares that can be bought and sold by members of the public. It remained in force for 105 years, but its effect on the development of the stock market was limited; there was only one prosecution under the Act during the 18th century, Rex v. Caywood in 1722.[2][c]The lawyer and academic L. C. B. Gower has written that the case “decided nothing of importance”.[3]

Three main explanations have been put forward in the literature for the introduction of the Bubble Act: the desire to prevent the speculation that produced the contemporary South Sea Bubble; an attempt to prevent the formation of smaller, non-charter companies and so reduce the importance of parliament in regulating businesses; third and most likely, the South Sea Company wanting to prevent other bubbles from forming that might have competed with it for investment. In that latter respect the Act was unsuccessful in diverting significant capital into the South Sea Company.[2]

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Bibliography


Gower, L. C. B. Principles of Modern Company Law. Stevens & Sons, 1979.
Harris, Ron. “The Bubble Act: Its Passage and Its Effects on Business Organization.” The Journal of Economic History, vol. 54, no. 3, 1994, pp. 610–627.
Harris, Ron. “Bubble Act of 1720.” The Oxford Encyclopedia of Economic History, edited by Joel Mokyr, Oxford  University Press, 2005.