Medieval Chinese merchants pooled investors' money long before Amsterdam's stock exchange
The idea of splitting a business into tradable shares is usually credited to the Dutch East India Company. Yet Tang and Song China had investor partnerships, a French milling company traded 96 shares around 1350, and a Swedish copper mine recorded a share transfer in 1288.
A joint-stock company divides ownership into shares that can change hands without disturbing the business itself. In modern law it usually means a corporation, a legal person that can sue and be sued, and limited liability, so that shareholders risk only what they invested. Owners elect a board of directors to run things and vote on annual accounts, but as shareholders they stand outside the firm.
In Tang dynasty China, the heben paired an active partner with one or two passive investors. By the Song era the douniu gathered a large pool of shareholders whose funds were managed by merchants, with profits shared according to stakes. A 1247 mathematical treatise includes a problem about four partners pooling 424,000 strings of cash for a trading voyage to southeast Asia, each receiving profits in proportion to their input.
In Europe, the medieval commenda financed single voyages. England's first recognised joint-stock firm, the Company of Merchant Adventurers to New Lands, was founded in 1551 with 240 shareholders and became the Muscovy Company. Queen Elizabeth I chartered the East India Company on December 31, 1600 with a fifteen-year monopoly on English trade in the East Indies. In 1602 the Dutch East India Company made its shares tradable on the Amsterdam exchange, and by 1612 it had become a corporation with locked-in capital and limited liability. Early firms paid dividends by dividing each voyage's profit, sometimes in leftover cargo when cash was short.
For centuries incorporation required a royal charter or a special act. The Industrial Revolution pushed Britain to allow simple registration under the Joint Stock Companies Act 1844, and the 1856 Act gave limited liability to any company that put the word limited in its name. The case of Salomon v A Salomon and Co Ltd confirmed that a company is a separate person from its owners. Lord Chancellor Haldane observed that a corporation has no mind or body of its own, so its will must be found in the people directing it.
Source: Joint-stock company
