The History of the Joint-Stock Corporation

What we call a "company" today is actually a collection of several mechanisms bundled together. If you take them apart one by one, you realize each is a rather peculiar idea.

Economic historians generally point to five defining features of the modern joint-stock corporation.

First is legal personality: the company is treated as an entity distinct from its shareholders. The company signs contracts, files lawsuits, and holds property in its own name. Second is permanent capital: rather than dividing the money and parting ways at the end of each venture, capital stays with the company. Third is transferable shares: even if the owners change, the company remains unchanged. Fourth is the separation of ownership and management—those who fund the business and those who run it are different people. And fifth is limited liability: even if the company fails, shareholders lose only the money they put in.

Economic historians refer to an organization that brought these five together as an "institutional breakthrough." The two European East India companies are often cited as prime examples. Yet research that looked inside these five features reached a different conclusion. A paper on the Dutch company notes that this corporate form emerged not from foresight, but from patching design flaws. Its concluding sentence was telling: legal form followed economic function, not the reverse.

In other words, no one sat down and designed these five traits. Problems cropped up, temporary fixes were made, and those makeshift solutions stuck. Tracing that sequence is what this story is about.

There is one more reason to follow the sequence: the order in which these five pieces were added determined who profited and who bore the risk. Locking up capital tied the investor's hands; making shares transferable untied them again. Capping shareholder losses at their initial investment meant lenders took on that much more risk. Every time a new mechanism was attached, the weight shifted somewhere else. That is the question we must keep asking throughout this story: with this piece added, whose risk grew?

First, there is something we need to ask: which company brought these five features together for the first time? There is no single answer to this question.

There is no single answer to this question unless you specify what kind of "first" you mean. That is because there are at least four different axes.

The first axis is an organization where ownership is divided into shares that can be freely transferred, and where the company is treated as a legal person separate from its shareholders. Here, a milling company in Toulouse, France, takes the lead. Mills along the shallows of the Garonne River first appeared in records in 1071, and by 1248, twelve were in operation. In 1372, these milling companies merged to form the "Honor del Bazacle." Shares were called uchaux, shareholders were called pariers, and there were initially 80 shares. Researchers call this company the earliest documented shareholding corporation, noting that shares were fully transferable without requiring the company's approval, and that by the 14th century, courts treated the company as a distinct legal entity separate from its shareholders. In 1384, two remaining mills that had stayed out of the merger were swapped for 16 new shares, bringing the total to 96 shares. Researchers describe this as an early case of a corporate acquisition.

The second axis is a trading company incorporated under a royal charter from the state. Here, the English came first. A charter dated December 31, 1600, incorporated the Earl of Cumberland and "215 others" into a single body corporate with perpetual succession. It also granted this company an exclusive 15-year monopoly on trade from past the Cape of Good Hope all the way to the Strait of Magellan. The Dutch company came along a little over a year later.

The third axis is the heart of this chapter: a company whose capital remained permanently locked in, rather than being liquidated and dispersed after every voyage. Here, the Dutch led the way—and the reason for it is rather strange. The fourth axis is a company that could obtain limited liability through simple registration, without needing a royal charter or an individual act of parliament. For that, you have to wait until 19th-century Britain.

So calling something the "first joint-stock company" without any qualifier lumps four completely different stories into one. Let's start with the third axis.

Even before the Dutch East India Company was founded, there were companies sending ships to Asia. The National Archives refers to these as "pre-companies," and here is how they raised money.

They raised the funds needed for a single voyage at that time. When the ship returned, investors received their principal back along with their share of the profits. Whether to invest in the next voyage was decided then. If a ship sank, many shared a small loss; if it returned safely, many shared a small gain. A mechanism for dividing risk was already in place here. It shares the same roots as the concept we now call diversification.

But there was a problem. Fierce competition among these companies eroded profit margins, and investors began looking for the exit. People argued that a merger was necessary, but conflicting regional interests made it difficult. In the end, the merger did not happen voluntarily. The National Archives notes that the government forced it. The Republic was at war with the King of Spain and Portugal, and a unified company could serve as a powerful military and economic weapon in that conflict.

On March 20, 1602, the States General issued a charter. Valid for 21 years, only this company was permitted to send ships and trade east of the Cape of Good Hope and west of the Strait of Magellan. Regarding capital, the charter specified the following: going forward, capital would not be collected for a single voyage, but locked in for 10 years; multiple fleets would be dispatched over those 10 years; in 1612, investors would receive their money back along with accumulated profits, after which subscriptions for the next 10 years would be opened. There was also a provision requiring an immediate dividend distribution whenever proceeds from selling Asian goods reached 5% of the original investment.

So what was new in 1602 was not the splitting of risk. It was locking up capital, which had previously been split and scattered, for 10 years. And even that was temporary.

The year 1612 arrived. And the money did not come back.

The National Archives of the Netherlands, which holds the charter, writes in the introduction to its archival inventory that there was no return of capital after 10 years. The initial investment remained locked in for the entire lifespan of the company. And one more sentence is added: the States-General, which had issued the charter, sided with the directors in failing to observe this clause.

The shareholders did not take this sitting down. Around 1622, when the charter was up for renewal, fierce protests broke out. They were fueled by the broken promises regarding dividends and capital returns, the directors' refusal to be transparent about company finances, and suspicions that directors were enriching themselves with company funds. The States-General made a few minor concessions while extending the charter for another 21 years. In the words of the National Archives, no substantial change was achieved.

It is not hard to guess why this happened. To build fortresses in Asia, maintain trading posts, and continuously keep ships at sea, money had to flow without interruption. That simply could not be sustained under a system where capital was liquidated and raised anew every 10 years. The National Archives notes that the return clause 'made the accumulation of capital impossible,' which was why the directors broke it rather than honored it.

This is precisely what the earlier-cited paper refers to as 'tinkering.' A structure where a corporation outlives human beings was not invented out of thin air; it was closer to an unkept clause simply hardening into permanence. From then on, the company also began paying out dividends in things other than cash. Sometimes it paid in spices, and in 1679, for the very first time, it paid dividends in unmatured bonds. In effect, the company took its own debts, turned them into paper certificates, and handed them out in place of cash.

Once capital was locked inside the company, a new problem arose: the people who put up the money could not get it back, while entirely different people were the ones spending it.

This was the structure established by the 1602 charter. Directorships were appointments for life. Shareholders had zero influence when it came to electing new directors. The obligation for directors to open the books only took effect after 10 years, at the first general accounting. The National Archives recorded that directors had "few obligations, and even those few were not strictly observed." A state where shareholders had no way of knowing what was happening inside the company—that is, information asymmetry—was baked right into the system.

The compensation structure was even more striking. The charter set directors' pay in two streams: 1% of the expenses spent outfitting the ships, and 1% of the profits from selling the returned cargo. This meant compensation was tied to spending too, not just profit. The more they spent, the more they pocketed. Today, we call an arrangement where investors shoulder the losses while managers are rewarded based on scale a moral hazard.

It was not completely without safeguards. Directors were required to hold a minimum amount of company stock. It was 6,000 guilders for the Amsterdam and Zeeland chambers and 3,000 guilders for the smaller chambers, which was treated as a form of collateral. It forced them to have skin in the game. In return, directors bore no personal liability for debts incurred by the company.

The fixes were patched on later. In 1623, three types of committees made up of major shareholders were created. One served as auditors, examining the general accounts first submitted in 1622 when the original charter expired. Another convened whenever a director's seat became vacant to draw up a 3-person shortlist alongside the directors, and 9 shareholders were permitted to attend meetings of the 17-member board to offer recommendations. Directors' terms were also capped at 3 years, though this rule was soon ignored and most kept their posts until death. In 1647, the 1% commission rule was eliminated altogether and replaced with a fixed salary: 3,100 guilders a year for directors of the Amsterdam chamber, 2,600 guilders for Zeeland, and 1,200 guilders for the smaller chambers.

What should executive pay be tied to? Even 400 years ago, they revised the rules twice trying to find an answer.

If shareholders couldn't elect directors or inspect the books, what power was left to them? There was just one: the power to leave.

Shares in this company were called actie. They had no fixed face value and, in the words of the National Archives, were always transferable. You could sell them, exchange them, or use them as collateral. When transferring a share, one or two directors signed an official deed of transfer alongside the bookkeeper. Selling to the market rather than speaking to the company—this was the very first right shareholders possessed.

The actual ledgers reveal who bought these shares. The August 1602 capital register of the Amsterdam chamber is on public view in the Dutch National Archives, and there you can see 85,000 guilders from the largest investor, Isaac Le Maire, right alongside 60 guilders from Grietgen Dircks, a maid working at the market. You can also spot names listed simply with the occupation of 'maid.' The charter allowed anyone living in the Republic to invest, setting no limits on the amount.

Trading soon took off. Just how lively it became was signaled first by regulation. In 1610, the States-General banned the sale of shares that one did not actually own. The National Archives notes this as the world’s first state intervention in stock trading. The very next year, in 1611, a stock exchange was established in Amsterdam.

A single sheet of paper from this era survives today. It is a receipt from September 9, 1606, confirming that Pieter Harmensz of the Enkhuizen chamber paid his final installment of 150 guilders. It is the oldest confirmed stock certificate known to exist, discovered in 2010 by Ruben Schalk, a student at Utrecht University, while searching for thesis material in the Westfries Archief. Recorded on the inside of the paper are dividends received through 1650. The Board of Seventeen set the dividend payout every year or every few years, and in some years, it was even paid out in spices.

The person who paid the money passed away long ago, yet the record of the dividends they collected remains on paper in the archives today. This single document shows us what it truly looks like when a corporation outlives a human life.

Now we come to the heaviest part of this story: how a trading company came to hold the power to govern.

The answer lies not in the structure of its shares, but in the document. The 1602 charter granted the company the authority to build fortresses in Asia, hire soldiers, conclude treaties with Asian rulers, and appoint judges. Yet the charter never specified how these powers were to be used. The National Archives notes that in 1602, it would have been impossible to foresee how the company's overseas authority would expand. The 1600 English charter contained the same kind of exclusive rights. The source of authority was not the shared-equity structure, but a mandate from the state.

Authority soon became organization. In 1609, the directors decided to entrust supreme command in Asia to a governor-general and established the Council of the Indies. In 1619, on the site of the Javanese port city of Jacatra, Batavia was founded—in the words of the National Archives, 'after many battles'—to serve as the headquarters for the governor-general and the council.

What happened next is best told in numbers. According to records from the Surpris Museum, in the Banda Islands in 1621, 1,200 people were shipped off the islands in late April, and about 800 of them were transported to Batavia. On May 8, all 44 orang kaya—the hereditary chieftains—who had survived interrogation were found guilty and executed. By mid-July, 476 people had been taken prisoner, and contemporary estimates suggest that about 2,500 died of hunger and deprivation. Thousands appear to have fled the islands, with at least 1,500 reaching the southern coast of Ceram. What the governor-general was after was a total monopoly on this spice.

The National Archives records that with the conquest of the Banda Islands in 1622, the company gained a monopoly on nutmeg and mace. Cloves took longer. The company uprooted and destroyed clove trees across several Moluccan islands to concentrate cultivation on Ambon, and with the fall of Makassar in 1667, the last port where cloves could be purchased outside the company fell into its hands. In the meantime, between 1602 and 1700, 317,000 people boarded the company's ships and left Europe.

During the very same era, there was another company that possessed those exact same five features: the milling company of Toulouse. That enterprise, whose shares were fully transferable and which the courts treated as an entity distinct from its shareholders, ground wheat. What made the difference was not the form of the company, but what was written in the charter.

Let's move our stage to Britain. Over here, the story takes a different turn as corporations became entangled with national debt.

In its own official history, the Bank of England notes that the South Sea Company was founded in 1711, and that it "threatened the Bank's position as the government's bank and holder of national debt." It also records that in 1720, when the company took over a portion of the national debt, its stock price soared dramatically. The very next sentence in the history reads like this: a speculative frenzy for shares took hold, but prices eventually collapsed, bankrupting thousands of people. It is a scene almost always summoned whenever people talk about economic bubbles.

That same year, the so-called Bubble Act was passed. It prohibited the formation of joint-stock companies without a royal charter. People often say this law froze the British corporate system for a century. But looking at the records from the debate to repeal the act, the picture looks a bit different.

On June 2, 1825, its repeal was debated in the British House of Commons. The Attorney General stated that the meaning of the law was completely unintelligible, making it impossible to ascertain the intent of the legislature. He added that ever since its passage in 1720, it had virtually been a dead letter, noting there had been no prosecutions under the act until 10 to 12 years prior. Member of Parliament Huskisson argued that the interests of commerce required proper encouragement and protection for joint-stock companies. An academic study also suggests that its deterrent effect has been exaggerated, pointing out how rare prosecutions under the act actually were. Still, a real constraint remained: without a royal charter, it was difficult to access a freely traded stock market.

During that era of loose enforcement, someone emerged who precisely named the underlying problem. In 1776, Adam Smith wrote in The Wealth of Nations that the directors of joint-stock companies are "the managers rather of other people's money than of their own." Because of this, one could hardly expect them to watch over it with the same anxious vigilance as partners guarding their own funds; like the stewards of a rich man, they overlook small details, thinking paying attention to them does not suit their master's honor. The sentence that followed was that "negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company." In the same passage, he also noted that most shareholders make no effort to understand the company's business, simply content to receive whatever dividend the directors decide to pay them.

And he left one more observation: in a joint-stock company, each member is liable only up to the amount of their share. This sentence is where our next chapter begins.

As Adam Smith wrote in 1776, limited liability itself was not a 19th-century invention. The 1602 charter also specified that directors would not be held personally liable for the company's debts. What changed in 19th-century Britain was how to obtain it.

Before that, you needed a royal charter or an individual act of Parliament. In 1844, the Joint Stock Companies Act was passed, legalizing company formation under certain conditions and establishing a registry. But parliamentary debates in 1856 recall that this procedure proved completely useless in practice, as certificates of provisionally registered companies circulated just as freely as those of fully registered ones.

In the summer of 1855, fierce debate broke out in the British Parliament over the Limited Liability Act. Let's look at the arguments from the opposition first. Mr. Strutt warned that this law would let people plunge into business with a limited chance of loss and an unlimited chance of gain. In modern terms, he captured moral hazard in a single sentence. Mr. Spooner called it a trap and a delusion designed to lure people into reckless and dishonest speculation. In the House of Lords, Lord St Leonards worried about companies drawing in people's savings with flashy prospectuses, noting that if only 20% were paid up on a 10-pound share, someone could set up 10,000 companies with capital of just 250 to 300 pounds.

The most practical objection came from Mr. Cardwell. He pointed out that uncalled capital—the balance shareholders had not yet paid, which the company could demand later—was the very safety cushion protecting lenders. If the company could not pay, that unpaid balance could be collected and handed over to creditors. Extending limited liability, he argued, would wear down that safeguard. For anyone who lent money to a company and held its debt, this was an issue that could not be brushed aside.

The arguments in favor were just as straightforward. Mr. Ball noted that an individual with small capital could achieve nothing alone, but pooling those small sums created substantial capital. In the House of Lords, Earl Granville insisted that the commercial world could not be left in an ongoing state of uncertainty.

The bill passed. As summarized in parliamentary records the following year, if 25 partners held three-fourths of the capital, paid up 20% each, and executed a deed, they could obtain a certificate of registration with limited liability. In 1856, the Joint Stock Companies Act was rewritten, sweeping away preliminary procedures that had provided no real value. What was once a privilege became a procedure. The concerns raised by opponents did not vanish, and that question remains a central debate in corporate law today.

The path through which this system arrived in Korea was different again. It was neither ships nor royal charters, but translation.

In 1883, writings calling for the founding of companies appeared in Joseon. Yu Gil-jun’s *Sanghoe Gwichik* (Rules for Commercial Companies), comprising 25 articles in all, addressed the issuance of shares and capital contributions, procedures for electing a president, general meetings of shareholders, head office organization, and the establishment of branch offices, while also regulating the election of company officers, the public disclosure of balance sheets, and the distribution of profits. An article titled "Hoesaseol" (On Companies) published in the October 21, 1883 edition of *Hanseong Sunbo* described a company as follows: gathering the capital of many people and entrusting it to a few to handle affairs in agriculture, industry, and commerce. It was a single sentence rendering the separation of ownership and management into Korean.

Actual companies were also established. In 1883, a commercial firm (Sanghoeso) was founded in Wonsan, followed by a commercial firm in Incheon in 1885, and a commercial law company in Busan in 1890; about 40 commercial companies appear in historical records up until the Gabo Reform. However, Woori History Net offers a cautious assessment of these ventures: qualitatively, they were no different from *dogo* (licensed monopolistic wholesale merchants) and functioned as a kind of partnership guild. A few prominent merchants would set up a company and have smaller merchants invest capital, while barring non-investing merchants from trading and monopolizing purchases of the relevant goods. In form they were companies, but in substance they were monopoly guilds.

In 1899, Daehan Cheon-il Bank was established. Woori History Net records that it was launched on January 29 through an inaugural meeting of 34 promoters, while the National Archives of Korea records it as a joint-stock company founded on January 30 centered around the merchant class. Its nominal capital was 56,000 won, divided into 112 shares (*geum*), with 1 share priced at 500 won. Because the price per share was ten times that of other banks, the pool of potential shareholders was effectively restricted. The National Archives of Korea records that Emperor Gojong provided 54% of the founding capital, and Crown Prince Yeongchin was recorded as the largest shareholder.

One striking clause stood out in this bank's articles of incorporation: the restriction that no one other than Joseon people could trade shares. While the free transferability of shares is the core mechanism of this system, here that circulation was blocked by nationality. It was the result of guarding against capital entering from the outside. Later, in 1909, when its capital was increased from 150,000 won to 500,000 won, the Takjibu (Ministry of Finance) became the largest shareholder, and on February 11, 1912, its name was changed to Joseon Commercial Bank. It merged with Joseon Industrial Bank in 1924, became the Commercial Bank of Korea in 1950, Hanvit Bank in 1999, and took its current name in 2002. Both its owners and name changed many times, yet the legal entity continued.

That principle, which faced opposition in the British Parliament in 1855 on grounds of creditor protection, now sits as a single sentence in Article 331 of the Korean Commercial Code: a shareholder's liability is limited to the subscription price of the shares they hold. According to the Ministry of Government Legislation's explanation, even if a company owes more money than it possesses, shareholders bear no liability to repay the company's creditors in its place.

You don't need to try to predict the future. Instead, drawing on what this history has shown us, let's simply identify what signals to watch so you can notice the board shifting before everyone else does.

First, let's look at its current size. According to OECD figures, as of the end of December 2024, there were 46,086 listed companies worldwide, with a combined market capitalization of $124.536 trillion, representing 112.7% of global GDP. South Korea accounted for 2,499 companies totaling $1.551 trillion, or 82.9% of its GDP, with the number of listed companies increasing by 6% compared to December 2021. Summary data from the same organization notes that since 2005, 35,000 companies worldwide have left the public markets. Companies are constantly entering and leaving at the same time.

The first thing to watch is who owns the shares. According to the same OECD tally, institutional investors hold 47% of all listed shares worldwide. If 400 years ago a maidservant had 60 guilders recorded under her name in a ledger, today nearly half of all equities are held by organizations managing other people's money. Another layer has been added between ownership and management. The arrangement is different in South Korea. Institutional investors hold 17%, while other corporations hold 27%—well above the global average of 9%. When the faces of shareholders differ from country to country, how companies are monitored changes, too.

The second is what kind of power shareholders have at their disposal. Throughout this story, shareholders have had two paths: speaking up inside the company, or selling their shares and walking away. In 1602, only the latter was open; in 1623, the former cracked open slightly. Even today, when regulations and systems change, it is almost always a question of which of these two doors is being widened.

The third is how corporations become entangled with things that are not corporations. The South Sea Company grew massive by tangling itself with government debt, and throughout this history, the forces that shifted the corporation's place were almost always outside the company itself: the needs of a wartime government, who controlled which port, laws determining who protected creditors, and even a single translated sentence.

Finally, just one more thing. In 1372, a company formed in Toulouse by combining flour mills survived a fire in 1888, transitioned into a hydroelectric power company, merged with another company in 1910 to list on the Paris Stock Exchange, and finally came to an end in 1946 when it was nationalized alongside other French power companies. It lasted 574 years. Across those centuries, shareholders changed countless times and the line of business changed completely, yet the corporation endured. From records gathered by researchers, dividend yields could be calculated for 327 different years, averaging around 5% per year, while long-term real share price appreciation was close to zero. It is a record of grinding wheat and dividing the proceeds, sustained across 574 years.

The very same mechanism powered watermills in one place and altered the population of an entire island in another. We have traced throughout this history where that difference came from. The next thing that reshapes this institution will likely come from somewhere outside the business news, too. Wherever that may be, it is well worth watching.