The introduction of the private limited liability company (PLLC) gave rise to significant transformation in national business landscapes by offering a new and expanded organizational framework for economic partnerships.Footnote 1 Through its provision of limited liability and capital lock-in, combined with flexible governance rules and organizational structure, it became one of the most preferred enterprise forms for businesses with small to medium-sized capital requirements. Studies on the UK, France, Germany, Spain, Turkey, and Japan have empirically demonstrated its rapid adoption and widespread popularity.Footnote 2 By the mid-twentieth century, it had been introduced in Portugal (1901), Austria and Ecuador (1906), Poland (1919), Chile (1923), Mexico (1934), Belgium (1935), Japan (1940), and Italy (1942), in all of which it enjoyed considerable success.Footnote 3 This paper contributes to expanding literature in the field of economic history examining legal innovations and the PLLC’s impact on business landscapes. To demonstrate its popularity among entrepreneurs, it investigates how the PLLC stimulated startup activity. The form’s suitability for new and capital-intensive businesses and industries is explored through the investigation of startup capital and economic sector activity data gathered from a vast and newly compiled firm-level database encompassing all businesses that were registered with the Viennese provincial court district between 1900 and 1936.
Traditionally, the public corporation or joint-stock company is regarded as superior to simple business partnerships in terms of business organization.Footnote 4 The arguments are manifold, but the idea most commonly expressed in literature is that the corporation permits organizers to lock in financial capital that enables long-term and highly specific investments.Footnote 5 Studies published to date also emphasize the unique status of corporations as legal entities, which protects them from opportunistic behavior of business partners and from the owners’ personal creditors.Footnote 6 In addition, it is argued that the separation of ownership and control grants distinct legal authority for corporate decisions apart from financial capital contributions, leading to better management performance.Footnote 7
Going beyond the corporation, recent research has begun to consider a wider range of enterprise forms. Larry Ribstein acknowledges challenges associated with the corporate form and introduces the concept of an “uncorporation.”Footnote 8 Timothy Guinnane, Ron Harris, Naomi Lamoreaux, and Jean-Laurent Rosenthal question the idea that the corporate form was the decisive factor in modern economic growth and show that it poses several disadvantages for small and medium-sized enterprises (SMEs). They contend that most entrepreneurs, when presented with an intermediate choice, opted not to organize their businesses as corporations.Footnote 9 Naomi Lamoreaux and Jean-Laurent Rosenthal show that the greater choice of legal forms in civil-law countries challenges the prevailing notion that the Anglo-American common law system is and was inherently better at fostering a favorable business environment for entrepreneurs, as argued by Rafael La Porta, Florencio Lopez-De-Silanes, Andrei Shleifer, and Robert Vishny.Footnote 10 Cihan Artunç and Timothy Guinnane demonstrate that noncorporate forms promote the formation of more productive enterprises through costless firm dissolution.Footnote 11
In many of the arguments concerning enterprise form choice, the PLLC plays a central role. It is viewed as a radical departure from previous thinking about business organization and seen as a middle-ground approach. It offers many of a corporation’s advantages while maintaining the partnership’s simplicity.Footnote 12 Expanding organizational options through new legal forms is therefore an effective way to help entrepreneurs solve contractual problems, especially if they are designed to ease the trade-offs inherent in existing legal structures. In such cases, the PLLC serves to illustrate that legal forms do matter.
Building on these ideas, this study examines the introduction of the PLLC in Vienna to assess the impact of legal innovation on entrepreneurial activity. To analyze this, the study examines the role of the PLLC in stimulating new business formation and displacing existing business forms. Given its similarities to the corporation—particularly in providing a favorable legal framework for financial investment—the study assesses whether sectors with higher capital requirements have preferred PLLCs. This builds on the findings of Timothy Guinnane and Susana Martínez-Rodríguez, who showed that the choice of legal form is influenced by a business’s potential capitalization.Footnote 13 Information on startup capital further helps determine the PLLC’s effectiveness for businesses and their capital needs.
The primary source of data for this paper is a newly compiled database of all firms registered in Vienna between 1900 and 1936, collected from a city-wide directory. This lists between 5,000 and 23,000 registered firms per year, and when combined, comprises more than half a million entries. It includes all Viennese PLLCs and joint-stock companies, as well as all registered single proprietorships and limited and ordinary partnerships. Each firm’s sector of activity, as indicated by the directory, has been used to classify it into an industry and sub-industry, resulting in the differentiation into 25 broader and 120 more specific business categories. While this classification provides a valuable insight into industry dynamics, the directory data are limited in other areas. It lacks detailed information on variables such as the ownership structure, number of employees, input and output, and machinery. To address this, startup capital data provided by the Lehmann were utilized as a proxy for firm size, acknowledging its limitations. By linking all PLLC records, a second database is created, wherein new PLLC entrances and exits are identified. As a result, more than 8,000 individual firms can be tracked throughout their lifecycle, facilitating an evaluation of annual entries by sector and capital. Since only firms with the PLLC business form were linked, the data did not provide information on how new PLLCs emerged or conversions between business forms. To partially address this limitation, additional sources were used to complement the data, offering insights into the origins of PLLCs for a specific period.
The Introduction of the PLLC in Austria
Before the PLLC was introduced in Cisleithania (the northern and western half of Austria–Hungary) in 1906, the menu of enterprise forms resembled that of other civil-law countries such as Germany, France, or Spain. Enterprise forms were regulated by the Austrian General Commercial Code (Allgemeine Handelsgesetzbuch [AHGB]).Footnote 14 Companies with multiple owners in Austria could be organized as ordinary or limited partnerships as well as joint-stock companies. The state obliged all partnerships and sole proprietorships to register with the commercial court once a threshold of business tax was exceeded, and the company could be considered a “commercialized business” (Art. 4). This meant that craft enterprises and small businesses had to be entered in the commercial register as their activities became significant.
An ordinary partnership consisted of two or more partners with unlimited liability. Registration at the commercial court was sufficient, meaning that no form of private contract was needed to validate the partnership (Art. 85). As a registered firm, it enjoyed entity protection. The firm could act in its own name, take on debt, and purchase land (Art. 111). Partnerships could transfer management to individual partners (Art. 99–102) but were unable to simply withdraw their shares from the business (Art. 108). Registration was publicly binding, and changes in the ownership were only valid after they had been reported to the commercial court. This offered Austrian businesses a significant advantage compared with their counterparts in the UK or USA, where partnership forms enjoyed no entity protection.Footnote 15 However, partners in Austria retained the option to withdraw from the partnership at any time, with a required 6-month notice period. The partnership could be dissolved immediately if contractual provisions were not adhered to, if one of the partners became privately insolvent, or in the event of death (Art. 123–125). Conversely, unscrupulous partners could involve the firm in their personal debts or exploit its assets for personal gain.Footnote 16 This posed a potential risk to creditors and investors alike and hampered its ability to raise capital. The possibility of partner withdrawals presented challenges for larger companies. Fixed capital, such as land, buildings, or railroads, was difficult to liquidate after an untimely dissolution. As a result, companies in sectors such as mining or infrastructure tended to avoid the partnership form.Footnote 17
A limited partnership closely resembled an ordinary partnership but included one or more limited partners. They had no personal liability beyond their investment and were entitled to a share of the company’s annual net profit. Their investment was locked in, and they could not participate actively in the firm’s management. As such, limited partners acted essentially as investors. For the same reasons as ordinary partnerships, the ability of limited partnerships to raise capital was also restricted.
The Austrian joint-stock company operated similarly to corporations elsewhere, with ownership distributed among numerous shareholders who enjoyed limited liability. Any capital invested in the company was locked in, and individual shares were tradable (Art. 207). This allowed companies to issue stock for trading and raise additional capital. These features made the joint-stock company particularly attractive to large enterprises with substantial capital requirements, setting it apart from partnerships.
Despite the joint-stock company’s absence of a minimum capital requirement, it was unattractive to SMEs for several reasons. First, there was no general incorporation in Austria. Until the introduction of the German Stock Corporation Act in 1938, the formation of a joint-stock company required a state-issued license, the provision of which was time-consuming and usually took 1–2 years.Footnote 18
Second, the organizational structure was more complex, and the ongoing operations were administratively burdensome. These entailed annual shareholder meetings, the publication of financial reports, and additional oversight by a supervisory board. Any changes to the articles of association required the approval of both the shareholders and the governmental authorities. Such formalities added to the fixed costs.
Third, corporations had to pay an entity tax. In Austria, net profits were taxed at 10.5%, with additional taxes levied on dividend payments, depending on their amount. Converting a partnership to a joint-stock company increased the tax burden by four to five times, leading to taxes on profits between 20% and 40%.Footnote 19 This created a gap in Austrian business law, as SMEs had little incentive to choose a joint-stock company, effectively excluding them from the benefits of limited liability. This legal discrepancy created a need for an alternative corporate structure that could accommodate different capital requirements while providing the same level of protection.
The introduction of a new legal form in Austria was initiated by a letter from the Chamber of Commerce in Eger (Bohemia) to the Austrian Ministry of Justice, advocating for the adoption of a PLLC law based on the German model. The Ministry took up the Chamber’s proposal, and close collaboration between legislators, legal professionals, and experts from Germany facilitated the rapid adoption of the new legal framework. In essence, the German PLLC law served as a “legal transplant,” incorporating improvements into the Austrian version derived from Germany’s experiences.Footnote 20 These improvements included restrictions on additional capital contributions to protect small shareholders and more robust capital protection.Footnote 21 The legislative process encountered relatively few obstacles, and the law’s final draft was met with little criticism during parliamentary discussions. In 1906, the PLLC Act was passed.Footnote 22
The PLLC in Austria was designed as a hybrid, combining features of both corporations and partnerships. Similar to corporations, it offered all members capital lock-in and limited liability. However, unlike corporations, it did not require a state license or include an entity tax, making it more accessible and cost-efficient. In the absence of general incorporation in Austria, the PLLC provided an easier route for entrepreneurs to enjoy these benefits without having to wait for a state license. In the view of some legislators, this bridged the gap between small partnerships and large corporations by establishing “a kind of middle ground.”Footnote 23 The PLLC was also private, meaning its shares could not be publicly traded, with a more personal ownership structure as the result. Any changes in members had to be reflected in the articles of association, officially notarized, and reported to the commercial court. This created transfer costs for selling shares to third parties and was seen as reducing the risk of speculation.Footnote 24 In addition, the voting rights of minority members could be increased, making PLLCs more attractive to small investors and enabling them to become more involved.
Franz Klein, head of the Ministry of Justice (Sektionschef) and a key figure in developing the PLLC law, saw the new business form as a link between active and passive participants. He believed that it would alleviate the paralyzing effects of ownership confronting shareholders in corporations, encourage personal involvement in the company, and maintain all members’ interest in management.Footnote 25 In this context, the PLLC represented a symbiosis between capital investment and active participation.Footnote 26
To establish a PLLC, members needed notarized articles of association between at least two people and total capital of at least 20,000 crowns, and they needed to appoint managers (§ 3–6). Owners were only required to contribute 25% of the authorized capital upfront and could use assets such as land, machinery, or other property to reach this threshold. Management could be determined flexibly, and members had the option to secure managerial positions for themselves, appoint nonmembers, or establish a supervisory board. Profits were to be flexibly distributed. For instance, a member with a 10% share of the total capital could receive half of the profits if the company deemed it prudent. To prevent the PLLC from being used to create large companies without state oversight and significant tax benefits, a supervisory board was made mandatory once total capital exceeded one million crowns and the entity had more than 50 owners (§ 29). In addition, these companies were required to pay an entity tax (§ 115).
Despite the expectation that the PLLC would be particularly attractive to SMEs, its role in Austrian economic life was not immediately clear. Franz Klein was convinced that the joint-stock company was technically and financially superior for large industrial and financial enterprises and that the PLLC would not diminish the corporation’s importance.Footnote 27 PLLC shares could never be traded or listed on the stock exchange, and the PLLC would never offer the same level of market accessibility and capital-raising potential as a corporation. However, the PLLC law’s primary goal was not to create a business form exclusively for SMEs. Klein saw the law’s main purpose to be addressing the diverse needs of Austrian economic life. Drawing from German experience, he recognized that the PLLC was utilized not only by small and family-run businesses but also by larger companies. Thus, the primary aim was to establish a business form that provided a more flexible and less burdensome legal structure, benefiting entrepreneurs regardless of the size of their business.Footnote 28
Data and Sources
This paper utilizes a newly created database that lists all firms established in Vienna between 1900 and 1936. For each year, 5,000–23,000 businesses are listed, resulting in a total of over half a million entries. The dataset was compiled from records printed in the firm directory (Firmenverzeichnis) of Lehmann’s Allgemeiner Wohnungs-Anzeiger (Adolph Lehmann’s General Apartment Advertiser) by Adolph Lehmann, later known as the Wiener Adressbuch (Viennese Address Book), or simply the Lehmann. The Lehmann was published annually from 1859 to 1942 and became the most popular and widely used directory in the city. Besides the firm directory, it included a register of all Viennese residents, a general commercial directory, and other essential information about the city, such as a list of streets, clubs, and public facilities.Footnote 29 Its firm directory encompassed all businesses registered at the commercial court (Handelsgericht) in Vienna. For that reason, it complements the commercial register (Handelsregister) in a compact and well-organized form. Here, one can find all joint-stock companies, PLLCs, limited and ordinary partnerships, and registered sole proprietorships within Vienna. Craft enterprises and smaller retail trade were excluded, as these were too small to be recorded per Austrian legislation. Only entrepreneurs paying a direct tax of 100 crowns or more from company acquisitions were required to register their business. In total, the commercial register represents around 13% of all existing businesses in Vienna.Footnote 30
The Lehmann indicates in its firm directory the address; the sector of activity; the business form, managers, and authorized signatories; and for PLLCs, the total capital of each business listed. Data were extracted from individual entries using pattern-matching techniques and reference tables.Footnote 31 Subsequently, information on the business sector was used to classify the firms into 25 broader and 120 more specific business categories. A PLLC’s declared total capital serves as a proxy for the business’s size. Even though it was unnecessary to pay the full amount in advance, and non-cash contributions were allowed, the total capital still reflects the business’s intended financial size and resource commitment.
Economically inactive firms that have not yet been officially de-registered from the commercial court are listed in the firm directory without address details. This was a common occurrence, leading to exit figures that lagged significantly behind those of actual cessation of business—often by several years. The Lehmann helps identify these inactive firms, ensuring that this study’s dataset only included active businesses.Footnote 32
A second dataset was created by focusing only on the PLLCs found in the Lehmann’s firm directory. New data linkage tools were used to connect individual PLLCs.Footnote 33 To ensure consistency and accuracy, firm names and numbers were treated as unique identifiers. Address details, first named managers, and sectors of activity complete the data linkage and were used to account for firm name abbreviations and spelling variations. Since the data originate from a single source, firm entries were generally consistent, with unique spellings repeated across editions of the Lehmann. Consequently, 79% of the data linking was achieved by connecting records that remained unchanged.Footnote 34 This resulted in a dataset that records over 8,000 unique PLLCs, which, in turn, allows us to identify annual firm entrances and exits along with their survival rates.
Additional statistical and qualitative sources assisted in increasing the understanding of the process through which PLLCs were introduced. Austrian-wide records on PLLCs startups were published annually between 1907 and 1916 in the Statistische Monatsschrift (statistical monthly report) issued by the Central Statistical Office. These provide insights into the origins of new PLLCs for the initial period. The directorate of the Austrian Museum of Commerce (Österreichisches Handelsmuseum) published data on the total capital of joint-stock companies and PLLCs between 1912 and 1915 in its official journal, Das Handelsmuseum. This enables the comparison of the total capital of joint-stock companies with that of PLLCs. Information about individual firms is gathered from the articles of association available in the commercial court records at the Municipal and Provincial Archives of Vienna (ACV), as well as from the Zentralblatt für die Eintragungen in das Handelsregister (Central Journal for Commercial Register Entries; hereafter ‘Zentralblatt’), the official organ wherein changes in the commercial register have been published since 1904.
An Accelerating Pace
The firm database records businesses in Vienna between 1900 and 1936 and indicates their legal form. Figure 1 presents the rapid adoption of the PLLC by entrepreneurs in Vienna and tracks its development compared with other legal forms. Most firms in Vienna remained single-owner businesses throughout this period, with multi-owner firms favoring ordinary partnerships. However, the popularity of the PLLC grew steadily, and by 1914, just 8 years after its introduction, nearly 10% of all firms in Vienna were organized as PLLCs. Austrian authorities viewed this as a validation of the need for the new legal form.Footnote 35 PLLCs were largely concentrated in Vienna, and the city emerged as a central hub for them. By 1914, Vienna had outpaced other regions, accounting for up to 40% of all PLLCs in Cisleithania. Following the collapse of Austria–Hungary in 1918, Vienna’s dominance further increased, becoming home to around 80% of all PLLCs in the newly established Republic of Austria.Footnote 36
Number of legal forms registered at the Viennese Commercial Court between 1900 and 1936.
Source: Firm database. See Appendix 1 for details.
Following the outbreak of World War I, the climate for business formation changed. Although rising inflation led to an increase in business taxes, the tax threshold for registration at the commercial court was not adjusted. This effectively reduced existing barriers to firm registration and saw the general number of registered businesses increased. In addition, the amount of capital required for establishing a PLLC was not adjusted for inflation, making the 20,000-crown minimum less and less significant. As of 1914, 20,000 crowns was approximately US$3,933; however, by 1921, that value had dropped to US$0.02.Footnote 37 As a result, PLLCs began to “spring up like mushrooms from damp forest soil.”Footnote 38
The subsequent increase of the capital requirement in 1921 to 500,000 crowns (equivalent to US$503) had little effect. By 1923, the share of PLLCs in Vienna reached 20%. The Vienna Chamber of Commerce grew concerned about this development, as well as the growing number of reports of speculative startups and fraud.Footnote 39 In response, the authorities began to intervene more proactively.
The 1924 PLLC Amendment again raised the capital requirement and mandated that at least half of a prospective company’s capital had to be contributed in cash, aiming to reduce the risk of firms being established without substantial investment and to prevent startups that existed only on paper.Footnote 40 The introduction of an “entity” tax for PLLCs eliminated the tax advantages they previously held over joint-stock companies.Footnote 41 The Gold Balance Act (Goldbilanzgesetz) of 1925 required firms to prepare a new balance sheet in the national currency, the shilling, with a minimum registered capital of 10,000 shillings (equivalent to US$1,404.95).Footnote 42 Under this law, the state was authorized to remove firms from the register if they failed to report their assets in the restored currency by 1928. These regulatory changes ultimately made PLLCs less attractive and reversed their growth. By 1929, the share of PLLCs in the commercial register had fallen to 7%.
In the years that followed, there was no new upswing. The global economic crisis of 1929 triggered a severe depression that saw several major commercial banks collapse. Austria’s leading credit institution, the Credit-Anstalt, which had played a crucial role in supporting Austrian industry, failed in 1931.Footnote 43 The resulting tumult hindered the recovery of the PLLC as a business form and saw their number remain at prewar levels.
Data on PLLC entrances and exits in Vienna derived from the linked PLLC database underline their swift growth during the years immediately after the form’s introduction. Figure 2 shows that, in 1912, more than 200 new PLLCs were registered in Vienna. The exit figures indicate that the postwar boom was immediately accompanied by a wave of de-registrations. Many PLLCs disbanded or became economically inactive after a few years of existence.Footnote 44 The year 1932 marked the first year since the mid-1920s in which PLLC entries outnumbered exits. Registrations slightly recovered throughout the 1930s but never reached prewar levels. This can be traced to the deep-seated shock of inflation, economic depression, and distrust of the PLLCs as a form owing to the large number of failed startups that had used it. While the period until 1914 was regarded as one of success, thereafter, its proponents were always on the defensive.
PLLC entries and exits in Vienna between 1906 and 1936.
Source: Linked PLLC database. See Appendix 2 for details.
Notes: Data for 1920 are missing because the Lehmann was not published for this year. Exits include registered firms that are marked as economically inactive by the editors of the Lehmann.
Data on the survival rates of PLLCs by founding periods in Table 1 reveal a decline in stability over time, with significant challenges posed by World War I, the hyperinflation of the early 1920s, and the global economic crisis starting in 1929. Firms established before World War I were notably more resilient than those founded during these periods of economic turmoil. Around 10% of prewar PLLCs survived both the war and the inflation crisis, while only 6–7% of PLLCs founded between 1914 and 1924 were still active by 1930. The situation for firms established during the inflationary years was particularly alarming—of the more than 4,000 new PLLCs formed, only about 300 lasted into the 1930s. These findings suggest that the economic conditions of war, inflation, and depression significantly impacted the viability of PLLCs, with far-reaching effects on their survival rates and longevity. It should be noted that the data reflect departures from the PLLC business form, which are interpreted here as exits. However, it does not account for conversions to other business forms, meaning some exits may represent firms that continued operations under a different legal structure.
Survival Rates of PLLCs by Founding Periods in Vienna
Source: Linked PLLC database. See Appendix 2 for details.
The rapid adoption and early success of the PLLC in Austria mirrors trends in other civil-law countries, such as Germany, which had a commercial code similar to Austria and experienced similar PLLC growth rates. By 1907, approximately 10% of all multi-owner firms in Germany were PLLCs, and by 1925, this had increased to around 30%.Footnote 45 Despite the PLLC’s popularity, sole proprietorships and ordinary partnerships remained the most common business forms in both Germany and Austria, with the PLLC needing longer to become dominant.
The aftermath of World War I and inflation influenced the pace and extent of PLLC adoption in both countries. Germany also experienced a rise in PLLCs during the postwar period of hyperinflation; however, thousands were stricken from the commercial register as the currency stabilized.Footnote 46 This phenomenon of “corporate reversal” strengthened traditional business forms, such as sole proprietorships and ordinary partnerships, which continued to play a major role despite the PLLC’s growing popularity.Footnote 47
In contrast, Spain and France saw more immediate and extensive adoption of PLLCs (known as “SRLs” in Spain and “SARLs” in France). The new business form was introduced in Spain shortly after World War I, and within 15 years, nearly half of all new multi-owner firms were SRLs.Footnote 48 Similarly, in France, the PLLC was swiftly accepted, with over 60% of new multi-owner firms registered as SARLs by 1930, just 5 years after its introduction. In Britain, although direct comparisons are challenging owing to a lack of data on partnerships, PLLCs notably displaced corporations. Within a decade of their introduction, PLLCs accounted for over 90% of all companies.Footnote 49
Origins and Capital Dynamics of PLLCs
While Figure 2 illustrates the rise and decline of PLLC registrations in Vienna, it does not specify whether these “new” PLLCs are actual startups, continuations, or conversions of existing businesses. Distinguishing between these is challenging owing to the lack of detail in the data about members or previous legal forms of newly registered PLLCs. Defining what constitutes a “new firm” involves conceptual challenges and depends on several factors: whether the firm is legally registered for the first time, whether it has a new and distinct business purpose or ownership structure, and whether its assets are newly acquired or transferred from an existing business. The Central Statistical Office of Austria (Statistische Zentralkommission) addressed this issue by classifying new firms according to whether the business objectives stated in the articles of association were “newly established” or a “continuation of an existing business.”Footnote 50 Because the commercial court was legally obliged to document all relevant information about the previous legal form of new PLLCs and report this to the Central Statistical Office, officials were able to trace their origins. Such data were published annually for Austria in the Statistische Monatsschrift until 1914.
Table 2 demonstrates the origins of PLLC startups between 1907 and 1914 and shows that 70% of all PLLC entries in Austria were new startups (and not continuations of existing businesses), meaning that they listed new objectives in their articles of association. This indicates that the PLLC’s introduction stimulated startup activity and offered entrepreneurs an incentive to establish a new company. Conversions were particularly common among businesses organized as partnerships and sole proprietorships. For these entities, transitioning to a PLLC was straightforward, requiring only the necessary capital contribution, and a notarized article of association, but not a full reorganization of the business. Notably, of the more than 570 conversions recorded by 1914, over 300 were from sole proprietorships. Several factors contributed to this trend.
Origins of the PLLC Startups in Austria between 1907 and 1914
Source: K. K. Statistische Zentralkommission, Statistische Monatsschrift, Vienna 1907–1916.
First, sole proprietors were able to improve their capital base by taking on business members and could simply fold their existing business into the new company as a non-cash contribution. This, in turn, allowed entrepreneurs to infuse money and new machinery into their ventures. At the same time, sole proprietors could secure privileges in the management of the new company.Footnote 51
Second, the PLLC allowed sole proprietors to merge their businesses. Each member could contribute their business assets while ensuring equal participation in the management.Footnote 52
Third, PLLCs could be formed with the help of a straw man and would not have to be dissolved if all shares were ultimately transferred to a single member. This allowed sole proprietors to convert their companies into a one-man PLLC while still enjoying limited liability.Footnote 53
Conversions from joint-stock companies were relatively rare. By 1914, 47 PLLCs in Austria had originally been joint-stock companies; however, this represented less than 2% of all PLLCs and around 5% of all joint-stock companies in the country. This is surprising, given the significant tax breaks that accompanied a conversion. An article in the Neue Freie Presse estimated in 1909 that a joint-stock company with a share capital of half a million crowns could reduce its tax burden to a quarter of the original amount after conversion.Footnote 54
One reason for the small number of conversions was the complexity of the accompanying legal process for doing so. Changing from a joint-stock company to a PLLC required approval from the administrative authority, and there was no automatic right to switch forms. For many existing firms, it was easier to remain in the legal form they had incorporated under, even if converting could have brought financial benefits. Experts such as Carl Quandt speculated about the low number of conversions, arguing that the PLLC was still relatively unknown and underappreciated in practice, which may have discouraged more companies from pursuing it.Footnote 55 Given that the PLLC had only a few years to establish itself in business practice before the outbreak of World War I, not enough time had elapsed to convince most joint-stock company owners of the merits of conversion.
The rise and significance of the PLLC in its early years in Austria can be further demonstrated by examining total invested capital data. As mentioned earlier, members were only required to contribute 25% of the firm’s authorized capital, rather than the full amount. While this requirement also applied to joint-stock companies, they were more likely to have a larger proportion of their capital paid in.Footnote 56 Despite these differences, with some exceptions, the comparison reveals important trends. Table 3 demonstrates that joint-stock companies in Austria continued to attract the most capital through new formations and capital increases. However, the PLLC was increasing in importance, accounting for more than 30% of all business investments (excluding partnerships and non-registered businesses). Between 1911 and 1913, PLLCs in Austria annually accumulated around 100 million crowns in capital.
Capital of Joint-Stock Companies and PLLCs in Austria between 1910 and 1914
Note: Values in millions of crowns.
Source: K. K. Österreichische Handelsmuseum, Das Handelsmuseum, 1912–1915.
In summary, this suggests a significant role for the PLLC following its introduction in Austria. The new legal form stimulated founding activity and drove an increasing number of conversions, primarily involving sole proprietorships and ordinary partnerships. By 1914, 8 years after its introduction, every 10th firm in Vienna was organized as a PLLC. At that point, the new legal form accounted for one-third of all invested capital in Austria. The shocks of war, inflation, and postwar hyperinflation prevented an expansion under “normal” conditions. Instead, the PLLC first experienced disproportionate growth, followed by a significant decline.
Patterns of PLLC Entries
The PLLC was created by legislators to fill a gap in the legal landscape of business organizations. It was designed to ease the trade-off between the partnership, which limits financial investment, and the joint-stock company, which carries higher organizational and operational costs. PLLCs were expected to be more attractive for entrepreneurs requiring medium-sized financial investments but who would benefit from a simpler corporate structure. The prevalence of the PLLC in industries with high capital demands strongly suggests that the choice of legal form was influenced by the business’s potential capitalization requirements.Footnote 57 Such demands are particularly pronounced in emerging industries characterized by technology-driven innovations and novel production methods. For the period under observation here, prime examples of these were the machine and chemical industries.
In these capital-intensive sectors, the PLLC offered advantages such as flexibility and the ability to concentrate ownership without requiring access to open capital markets, unlike joint-stock companies. This contrasts with the service sector and small businesses, which are often more labor-intensive and burdened by wage costs rather than investments in machinery. To test this hypothesis, the sector of activity and the total capital of established PLLCs were examined, with capital stock serving as a proxy for business size. In our case, capital ranges from 20,000 crowns (the minimum) to more than one million crowns.Footnote 58
Table 4 visualizes the share of newly registered PLLCs by sector and period. It demonstrates that, during the prewar period, a significant proportion of the entrepreneurial activity attributed to the PLLCs was concentrated in manufacturing. Despite a decline in its percentage share, it remained the most important sector for PLLC formation across the years under examination.
Number of New PLLCs between 1906 and 1936 by Sector
Source: Linked PLLC database. See Appendix 2 in the online supplement for details.
A more detailed breakdown of manufacturing entries illustrates that PLLCs were present across all industries but particularly prominent in the machine, chemical, and, to some extent, metalworking sectors.Footnote 59 Apart from the inflationary years of the 1920s, these industries consistently accounted for more than half of all PLLC entries, year after year. Businesses classified as electrical and automotive, as well as the petroleum and rubber industries, assumed a leading place among sectors at the beginning of the twentieth century.Footnote 60 Then, as now, they are characterized by their high levels of mechanization, technological innovation, and their capital intensity.Footnote 61 The business censuses conducted in 1902 and 1930 reveal substantial growth in Vienna’s machine industry, both in terms of employment and the number of businesses. While the labor-intensive garment industry had traditionally been the largest employer in the city, the machine industry secured second place. Notably, within the electrical sector, the number of businesses with fewer than 20 employees increased eightfold, while those with a workforce ranging from 20 to 100 employees more than doubled during this period.Footnote 62
The distribution of legal forms in Table 5 shows that, by 1914, the share of PLLCs in the machine and chemical industries surpassed 25%. Nearly 40% of all automotive and electrical firms were organized as PLLCs. This dominance can further emphasize the PLLC’s significance and suitability for capital-intensive industries. Noteworthy are the coal, gas, and petroleum industries, where every second enterprise was organized as a PLLC. Most of the Viennese PLLCs in the petroleum industry had their production sites in oil fields in Galicia (Western Ukraine). In the nineteenth century, the demand for petroleum increased rapidly, huge production plants were built, and new drilling systems were invented.Footnote 63
Distribution of Legal Forms by Selected Industries and Sub-Industries
Source: Firm database. See Appendix 1 in the online supplement for details.
In contrast, the garment industry and others similar to it had little use for the new legal form. Until the turn of the century, large factories were rare, the level of mechanization was low, and production was based almost entirely on the combination of a putting-out system, where work was contracted out to small businesses, and traditional handcrafting. Within this well-established system, the most successful manufacturers were those that were established half a century previously and still owned by their founders.Footnote 64 They had little incentive to adopt the new legal form since the availability of cheap labor greatly reduced their investment needs. By 1914, only 36 PLLCs had been established in the garment industry, corresponding to less than 4% of all firms in the sector. A similar trend can be observed in the wood and leather industries and other labor-intensive industries.
Table 4 also reveals that the share of PLLCs in the manufacturing sector gradually declined, despite the form’s early prevalence. This compared unfavorably with other sectors, where notable growth was recorded. From its introduction, experts were aware of the PLLC’s extremely advantageous character for companies engaged in trade. Konrad Fleischner, a jurist, argued that export companies required a medium-sized enterprise form where risk was limited but participation in management was preserved.Footnote 65 Not only did the PLLC meet the needs of manufacturing businesses, but it also offered advantages to those firms engaged in wholesale trading or import/export.
Table 5 shows that trade groups working with textiles, garments, or foodstuffs did not embrace the PLLC en masse. However, increasing numbers of PLLCs could be found among groups that traders engaged in export activities and the wholesale market. The remarkable proliferation of PLLCs among traders during the postwar years (1919–1924) was connected to postwar inflation and the role of Vienna as an international commercial hub in the wake of Austria–Hungary’s dissolution. In addition, the crown’s low value brought export bonuses and encouraged speculation.Footnote 66
The interwar period also witnessed an increase of PLLC formations in the service sector. By the 1930s, more than one in every five new entries was a PLLC. Among new enterprises in the service sector, nearly half were agencies, engaged in managing real estate, private business, trusts, advertising, or travel. Another quarter of these were cinema and film enterprises. The share of PLLCs in those subsectors was comparatively high. By 1914, around 40% of all established agencies and over 70% of all cinema and film companies were PLLCs. Here, the PLLC remained the most important business form throughout the period under observation, even after the Austrian film suffered a shock in 1930 due to the switch to “talkies.”Footnote 67
The transition toward service-oriented enterprises, including trade, reflects the changing nature of Vienna’s economy. In 1910, half of Vienna’s workforce was employed in manufacturing, but by 1934, that share had declined to 40%. The population census reports 18,000 more individuals employed in the service sector than in manufacturing in Vienna in the 1930s.Footnote 68 The PLLC’s appeal among entrepreneurs venturing into new and emerging business sectors signified their need for limited liability protection and a simplified corporate structure.
A look at the startup capital of new PLLCs for the period encompassing from 1906 to 1914 in Table 6 shows that the PLLC was well suited for medium capital requirements. Between those years, around 40% of newly established PLLCs had less than 50,000 crowns in capital. Meanwhile, nearly half were founded with a startup capital ranging from 50,000 to 500,000 crowns. A sectoral disaggregation reveals significantly larger PLLCs in the machine, chemical, and foodstuffs industries compared with the wood industry or garment industry. In total, more than 11% of all PLLCs had a nominal capital of 500,000 crowns or more.
Number of New PLLCs by Startup Capital and by Sectors and Manufacturing between 1906 and 1914
Notes: Sum in crowns.
Source: Linked PLLC database. See Appendix 2 in the online supplement for details.
While there were relatively few large PLLCs, their magnitude should not be underestimated when compared with the overall Viennese corporate landscape. The 147 larger PLLCs founded as of 1914 compare favorably with the city’s 328 joint-stock companies as of 1912.Footnote 69 If those PLLCs had been launched as joint-stock companies, Vienna’s total would have grown by almost 25%. Although Carl Quandt struggled to explain why so few conversions of joint-stock companies into PLLCs occurred, this shows that a considerable proportion of entrepreneurs opted to organize as a PLLC at the time of their firm’s establishment.
Conclusions
The PLLC’s introduction in Austria was intended to fill a gap in the legal landscape and expand the organizational choices available to entrepreneurs, offering a viable alternative to the investor-unfriendly partnership structure and the administrative-heavy joint-stock company. This paper has explored the diffusion of this new legal structure and its emergence as a vital component of the Austrian economy. The successful emergence of the PLLC in Vienna and Austria demonstrates how legal innovations serve as powerful instruments for fostering entrepreneurship and driving economic development. In this vein, legal forms matter because they alleviate constraints imposed by existing legal frameworks and expand the organizational choices available to firms. Even though the development analyzed was marked by Austrian peculiarities and shaped by impactful events, such as World War I (and Austria–Hungary’s defeat in it), the dissolution of Austria–Hungary, hyperinflation, and a rapid decline in PLLC numbers, the findings of this paper have implications that extend beyond Austria.
The success of the PLLCs has been demonstrated through the increase of entrepreneur activity. After its introduction in Austria in 1906, the PLLC stimulated the establishment of new firms, supplanted other business forms, and accumulated a significant share of the country’s capital. It effectively met the needs of the Austrian economy and contributed to its continued growth.
The sectoral data have shown that the PLLC thrived among certain industries such as machinery and chemicals, which were characterized by a high reliance on technology and capital. These sectors were key beneficiaries of the new regulatory framework. The PLLC effectively met their needs, fostering an environment conducive to the emergence of new businesses. Conversely, in “older” sectors with lower capital demands, sole proprietorships and partnerships remained dominant. During the interwar period and especially in the 1930s, the service sector began to rely on the PLLC as a valuable business form. Here, the PLLC helped entrepreneurs engage in new and growing fields of business such as real estate management, advertising, cinema, and film.
While this study has provided key insights into the role of the PLLC in fostering entrepreneurship, limitations remain. Data from sources such as the Lehmann directory, though helpful for identifying sectoral trends, lack critical details such as number of employees, ownership structure, and machinery usage—information that is especially elusive for SMEs, often buried in archives or lost forever. In addition, expanding the analysis to link data across various legal forms beyond the PLLC could deepen our understanding of how different partnership structures evolved. This would offer valuable insights into how legal changes influence businesses and economies.
Supplementary material
For supplementary material accompanying this paper visit https://doi.org/10.1017/S0007680525100858
Author biography
Michael Hödl is a postdoctoral researcher at the Department of Economic and Social History at the University of Vienna in Austria. His research studies the economic and business history of Austria, with a focus on the spatial distribution of firms, external economies, and production networks. His current project involves investigating the history of state-owned enterprises in Austria since 1945.
Open access
