The Bubble Act 1720 ( 6 Geo. 1. c. 18) (also Royal Exchange and London Assurance Corporation Act 1719) was an act of the

Parliament of Great Britain The Parliament of Great Britain was formed in May 1707 following the ratification of the Acts of Union 1707, Acts of Union by both the Parliament of England and the Parliament of Scotland. The Acts ratified the treaty of Union which created a ...

passed on 11 June 1720 that incorporated the Royal Exchange Assurance Corporation and London Assurance Corporation, but more significantly forbade the formation of any other joint-stock companies 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 ...

. Its provisions were extended later by the ( 14 Geo. 2. c. 37) to include its colonies, particularly Massachusetts. The act gave the South Sea Company 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 considerably smaller portion in the Northern Hemisphere. It can also be described as the southern Subregion#Americas, subregion o ...

until the

South Sea Bubble South is one of the cardinal directions or compass points. The direction is the opposite of north and is perpendicular to both west and east. Etymology The word ''south'' comes from Old English ''sūþ'', from earlier Proto-Germanic ''*sunþa ...

"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

, an attempt to prevent smaller non-charter companies from forming and so reduce the importance of Parliament in regulating businesses; or the South Sea Company 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 The act was partially repealed in 1825 by the ( 6 Geo. 4. c. 91). The residue of the act was repealed in 1901.

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 Incorporation (business), incorporated and granted rights (often Monopoly, exclusive rights) by royal charter (or similar instrument of government) for the purpose of ...

without a charter from the royal government. Under the terms of the act, the Royal Exchange Assurance Corporation and the London Assurance Corporation were granted charters to write marine insurance. Until 1824, they remained the only joint-stock firms with such a charter.

Background

Contents

See also

References

Further reading