Entrepreneurs with enough capital could build ships bigger than the Spanish and Italian cogs, great ocean-going vessels stocked with goods and precious metals to exchange, fitted with cannons to fend off pirates.
The ship would sail east, as Vasco da Gama had done, around the Horn of Africa, to the far reaches of the world, to the riches of India And China.
But how to raise the funds to do this, without raiding the royal mint?
One way would be to round up enough investors so that even if each committed a modest amount, the sun would be large.
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In return for investing, each shareholder would jointly own the trading company, in proportion to the number of shares owned.
But to make this joint stock company work, the issue of liability for company debt had to be addressed.
Businesses might have sensible reasons to borrow, but it made little sense for shareholders to voluntarily risk losing their shirt or their home if those debts were not repaid.
But what if the amount investors put at risk were limited to the amount paid for the shares?
With A floor under investors’ potential loss, and no ceiling on potential profits, the risk/reward profile became more attractive.
The East India Company received its charter from Queen Elizabeth I of England, on New Year Eve in 1600.
It was a corporation, with its own legal status and identity, distinct from its 218 shareholders, whose liability was limited to what they had paid to buy shares.
The professional managers appointed to run the company might be shareholders also, but they were to run the business in the collective interests of the corporation, rather than any individual.
In short, this joint stock company was an organization.
But if shareholders did not manage the business, how would they know what managers were doing, how the business had fared, and what they were owed from their share of profits?
The separation between owners and managers created an information gap.
To fill the gap, careful books and accounts had to be maintained, and information had to be presented to shareholders in a timely manner.
The production and exchange of accurate and credible company information was essential if the joint stock company were to be viable.
Following the example set by the English, the first ships from the Dutch East India Company, the Vereenigde Oostindische Compagnie, or VOC, set sail for the Indian Ocean in 1604.
Dutch supremacy and subsequent downfall
Counterparts from Sweden, Denmark and France soon followed, but the Dutch East India Company, the first company to issue shares to the general public, was the largest of them all.
By the 1670’s, the VOC boasted 150 hulking East Indiaman cargo ships, some stretching 300-feet from bow to stern, 40 warships to protect them, and tens of thousands of employees, spread across the world.
Over the course of the two centuries of its existence, the Dutch East India Company would send more Europeans to work in Asia than the rest of Europe combined.
It was not only the first transnational corporation, but also the most valuable business enterprise in history, reaching a peak market value, in the 1720’s, of the equivalent of $8 trillion.
The halcyon days ended soon thereafter, as increased competition, poor management and declining terms of trade sent company profits into terminal decline.
To maintain dividends, managers resorted to drawing down capital, borrowing, and even paying dividends in spices.
Investors who might have injected capital into the company shied away, put off by the level of company debt, and the stratospheric share price, which depressed the dividend yield.
Foreign government bonds and stocks listed elsewhere, particularly in London, were more attractive investments.
The perennially low Dutch interest rates might have enabled the Victor soldier on indefinitely by borrowing, but for the ruinous Anglo-Dutch War that broke out in1780.
After the Dutch government nationalized the Company in 1796, its Indian Ocean territorial possessions, including the islands in the Indonesian archipelago, were confiscated by the Dutch and British governments.
The British East India Company lasted longer, but eventually met the same fate, in 1858.
The Demise of the trading companies turned their territories, outposts and settlements into far-flung colonial empires ruled by European governments.
The joint stock companies had not only transformed the patterns of world trade, they had redraw the political map of the world.
They were not done.
New technologies being developed in England In the 18th century revolutionized production and labor, and transformed how and where people lived.
Ships made of iron, driven by steam engines, replaced ships made of wood, driven by wind.
But machines and factories forged from iron and powered by steam cost far more than the East India man plying the waters of the Indian Ocean.
To finance the Industrial Revolution, entrepreneurs turned to the joint stock company.
And to raise the capital that the industrialists needed, joint stock companies had to produce and exchange even more information.
The author is a writer and researcher in Dhaka, who previously worked as an investment banker in London and New York