Joint-Stock Company | History, Definition & Examples

What Is a Joint-Stock Company?

Throughout history merchants have sought ways to make large business ventures less risky and easier to finance. Joint-stock companies were formed in Europe in the early seventeenth century as a means to limit the many 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, thus making the new shareholders partial owners and investors in the company. In this way both the risk and cost of doing business were distributed over a large number of people.

A stock certificate for the Dutch East India Company

Company profits were likewise communal in such a system; shareholders were paid dividends proportionate to their stake in the company. Many joint-stock companies came to utilize another novel feature to the business world, the stock exchange. Shareholders in a company could sell their shares on a stock exchange, oftentimes at a great profit. Because the value of a share fluctuated based upon the perceived success and profitability of the company, the price of shares rose and fell accordingly. The publicly traded companies and stock exchanges of the twenty-first century have their roots in these earlier business institutions of the 1600s.

Historically, one of the most risky and expensive ventures for businessmen was long-distance trading. European merchants in the early modern period recognized that trading goods overseas could reap spectacular profits since many trade goods increased in value the further they were taken from their point of origin. However, organizing a large trade mission was often so expensive that it was often out of reach of most businesses. Furthermore, once a trade mission was underway, there were shipwrecks, pirates, diseases, price fluctuations and natural disasters to worry about, all of which could wipe out an entire trade mission. Joint-stock companies were formed in a number of European cities in the early 1600s primarily as a means to mitigate these risks and costs.

Famous Joint-Stock Companies in History

Joint-stock companies emerged in the seventeenth and eighteenth centuries in Europe and for serving a leading role in spurring on global commerce and colonization. The most famous and successful of these companies were centered in England and Northern Europe, namely the English East India Company and the Dutch East India Company.

The Headquarters of the English East India Company in London, c.1790

The Dutch East India Company was established in 1602 with the approval and backing of the government of the Netherlands. In the early seventeenth century some of the most sought-after trade goods in Europe were spices -- namely, cinnamon, nutmeg, cloves and mace. Such spices were tremendously expensive and rare on the European market and grown only 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 focused most of their efforts on the islands of Southeast Asia but established trading centers in places like Japan and Africa as well.

The English East India Company made its greatest gains in India. Established in 1600, the English East India Company traded in Indian textiles, precious metals, Chinese silks and tea throughout the Indian Ocean basin. Like the Dutch in Southeast Asia, English merchants conquered key port cities and provinces throughout South Asia. By the close of the eighteenth century the English East India Company controlled vast portions of India.