The Evolution of Shareholder Voting Rights: Separation of Ownership and Consumption

72 Pages Posted: 17 Feb 2013 Last revised: 4 Nov 2018

See all articles by Henry Hansmann

Henry Hansmann

Yale University - Law School; European Corporate Governance Institute (ECGI)

Mariana Pargendler

Fundação Getulio Vargas Law School at São Paulo; New York University School of Law; European Corporate Governance Institute

Date Written: December 10, 2013


The nineteenth century saw the standardization and rapid spread of the modern business corporation around the world. Yet those early corporations differed from their contemporary counterparts in important ways. Most obviously, they commonly deviated from the one-share-one-vote rule that is customary today, instead adopting restricted voting schemes that favored small over large shareholders. In recent years, both legal scholars and economists have sought to explain these schemes as a rough form of investor protection, shielding small shareholders from exploitation by controlling shareholders in an era when investor protection law was weak.

We argue, in contrast, that restricted voting rules generally served not to protect shareholders as investors, but to protect them as consumers. The firms adopting such rules were frequently local monopolies that provided vital infrastructural services such as transportation, banking, and insurance. The local merchants, farmers, and landholders who used these services were the firms’ principal shareholders. They commonly purchased shares not in the expectation of profit, but to finance collective goods. Restricted shareholder voting assured that control of the firms’ services would not fall into the hands of monopolists or competitors. In effect, the corporations had much the character of consumer cooperatives. This perspective also sheds light on the unusual importance given to the doctrine of ultra vires in the nineteenth century.

While current legal and economic scholarship has focused incessantly on the separation between ownership and control, the prior separation between ownership and consumption, accomplished by the late nineteenth century, was another fundamental but generally overlooked turning point in the history of the business corporation. Understanding this transformation throws light not just on historical practices, but also on contemporary debates over deviations from the rule of one-share-one-vote.

Keywords: Corporate Governance, History, Ownership Structure, Shareholder Voting Rights

JEL Classification: G32, K22, N20, 016, P13

Suggested Citation

Hansmann, Henry and Pargendler, Mariana, The Evolution of Shareholder Voting Rights: Separation of Ownership and Consumption (December 10, 2013). Yale Law Journal, Vol. 123, pp. 100-165, 2014; European Corporate Governance Institute (ECGI) - Law Working Paper No. 219/2013. Available at SSRN: or

Henry Hansmann (Contact Author)

Yale University - Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States
203-432-7101 (Phone)

European Corporate Governance Institute (ECGI)

B-1050 Brussels


Mariana Pargendler

Fundação Getulio Vargas Law School at São Paulo ( email )

R. Rocha, 233, Bela Vista
São Paulo, 01330-000

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

European Corporate Governance Institute ( email )

B-1050 Brussels

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