Joint-Stock Company: Definition, History, and Examples

Merchants have sought ways to make large business ventures less risky.In Europe in the early 17th century, joint-stock companies were formed to limit the risks and costs associated with certain types of business.In a joint-stock company, individuals were able to purchase portions of the company in the form of shares, making them partial owners and investors.The risk and cost of doing business were distributed over a large group of people.

In such a system, shareholders were paid dividends based on their stake in the company.The stock exchange was used by many joint-stock companies.It is possible for shareholders in a company to sell their shares on a stock exchange.The price of shares rose and fell depending on the success and profitability of the company.The public companies and stock exchanges of the twenty-first century were founded in the 1600s.

Long-distance trading was one of the most risky and expensive ventures for businessmen.Many trade goods increased in value the further they were taken from their point of origin, which allowed European merchants to make huge profits.It was often out of reach of most businesses to organize a large trade mission.Wrecks, pirates, diseases, price fluctuations and natural disasters could wipe out an entire trade mission.In the early 1600s, a number of European cities formed joint-stock companies to mitigate risks and costs.

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The emergence of joint-stock companies in Europe in the 17th and 18th century helped spur global commerce and colonization.The English and Dutch East India Company were the most famous and successful of these companies.

The Dutch government backed the establishment of the Dutch East India Company in 1602.Spices were some of the most sought-after trade goods in Europe in the early 17th century.Such spices were rare and expensive on the European market and only grown on a small number of distant islands in Asia.The Dutch East India Company was able to establish trade connections with several key trading ports in Asia and to ship high-value Asian trade goods back to Europe for sale.The Dutch established trading centers in places like Japan and Africa as they focused on the islands of Southeast Asia.

The English East India Company made a lot of money in India.The English East India Company traded in Indian textiles, precious metals, Chinese silks and tea throughout the Indian Ocean basin.English merchants conquered key port cities and provinces in South Asia like the Dutch did in Southeast Asia.The English East India Company controlled a large portion of India by the close of the 18th century.

This is a good place to remember two points.The Dutch and English formed joint-stock companies from other nations.High-risk ventures like trading and mining were founded in Europe.The French formed their own French East India Company in 1664 after seeing the success of the Dutch and English.There were also companies formed in other countries.

The second point is that not all joint-stock companies were successful.Scotland's attempt to form a company to colonize Central America was a disaster.Scotland sent over 2,000 soldiers and merchants to Panama in the hopes of establishing a trading outpost.In a short period of time, almost everyone had died of Malaria, Yellow Fever or attacks from nearby Spanish outposts.The Dutch were not immune to failure.The Dutch West India Company, which operated in the Americas, went bankrupt after 53 years.

Over time, the joint-stock companies that found success like the Dutch and English became less and less like businesses and more like themselves.There were a number of reasons why this transition happened.

Joint stock companies began investing in large warships to protect their trade cargo.The English, Dutch, French and Swedish used the East Indiaman sailing vessels to conduct trade and conquer key trading ports throughout Asia.Joint-stock companies began to train their own soldiers and build fortifications in places they conducted business.The foundations for political and commercial control were laid by trading companies.

Many joint-stock companies were granted monopoly rights to trade in certain regions.Joint-stock companies abroad were able to operate like extensions of their home government because of this.

In the mid-1700s, the English East India Company won a number of battles in India against local rulers and French competitors, making it the most famous instance of a joint-stock company transitioning into an empire.India became the property of the British Empire by driving out other Europeans and extending control over local government officials.

The risk and cost of doing business are mitigated through the sale of shares in a joint-stock company.The most famous joint-stock companies were founded in Europe to conduct long-distance overseas trade.The English and Dutch East India Companies were the most successful, growing to such heights as to create their own informal empires in Asia.

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