Joint-stock Company - Early Joint-stock Companies

Early Joint-stock Companies

Finding the earliest joint-stock company is a matter of definition. Around 1250 in France at Toulouse, 96 shares of the Société des Moulins du Bazacle, or Bazacle Milling Company were traded at a value that depended on the profitability of the mills the society owned. The Swedish company Stora has documented a stock transfer for 1/8 of the company (or more specifically, the mountain in which the copper resource was available) as early as 1288.

In more recent history, the English were first with joint-stock companies. The earliest recognized company was the Company of Merchant Adventurers to New Lands, chartered in 1553 with 250 shareholders. Russia's Muscovy Company, which had a monopoly on trade between Moscow and London, was chartered soon after in 1555. The much more famous, wealthy and powerful English (later British) East India Company was granted an English Royal Charter by Elizabeth I on December 31, 1600, with the intention of favouring trade privileges in India. The Royal Charter effectively gave the newly created Honourable East India Company a 15-year monopoly on all trade in the East Indies. The Company transformed from a commercial trading venture to one that virtually ruled India as it acquired auxiliary governmental and military functions, until its dissolution.

Soon afterwards, in 1602, the Dutch East India Company issued shares, that were made tradeable on the Amsterdam Stock Exchange. An invention that enhanced the ability of joint-stock companies to attract capital from investors as they now easily could dispose their shares.

During the period of colonialism, Europeans, initially the British, trading with the Near East for goods, pepper and calico for example, enjoyed spreading the risk of trade over multiple sea voyages. The joint-stock company became a more viable financial structure than previous guilds or state-regulated companies. The first joint-stock companies to be implemented in the Americas were The London Company and The Plymouth Company.

Transferable shares often earned positive returns on equity, which is evidenced by investment in companies like the British East India Company, which used the financing model to manage trade in India. Joint-stock companies paid out divisions (dividends), to their shareholders by dividing up the profits of the voyage in the proportion of shares held. Divisions were usually cash, but when working capital was low and it was detrimental to the survival of the company, divisions were either postponed or paid out in remaining cargo which could be sold by shareholders for profit.

However, in general, incorporation was only possible by Royal charter or private act, and was limited owing to the government's jealous protection of the privileges and advantages thereby granted.

As a result of the rapid expansion of capital intensive enterprises in the course of the Industrial Revolution in Britain, many businesses came to be operated as unincorporated associations or extended partnerships, with large numbers of members. Nevertheless, membership of such associations was usually short term, so their nature was constantly changing.

Consequently, registration and incorporation of companies without specific legislation was introduced by the Joint Stock Companies Act 1844. Initially companies incorporated under this Act did not have limited liability, although it became common for companies to include a limited liability clause in their internal rules. In the case of Hallett v Dowdall the English Court of the Exchequer held that such clauses bound people who have notice of them. Four years later the Joint Stock Companies Act 1856 provided for limited liability for all joint-stock companies provided, amongst other things, that they include the word "limited" in their company name. The landmark case of Salomon v A Salomon & Co Ltd established that a limited liability company had a distinct legal personality, separate from that of its individual shareholders.