Introduction of the IPO
IPO refers to an Initial Public
Offering. It is the first offering made to the public by a company to buy stock of that company through a securities exchange board.
It is through this process that a private company converts into a
public company. These companies utilize IPOs to raise additional
capital, which may be used for a variety of purposes including
expansion, mergers and acquisitions. Shares of a company begin
to trade freely after the IPO is made.
Origins of Public Shares
The earliest form of raising capital
from the public can be traced back to the Roman Republic. The
companies that raised capital were known as publicani. These
were legal bodies just like joint stock companies of today. They
were independent of their members and the shareholders were the
owners of the company in proportion to the number of shares
that they had bought.
Studies show that the shares were
indeed sold to different investors. The shares were traded in the
form of an over the counter market near the Temple of Castor and
Pollux. The value of the shares fluctuated according to certain
parameters and this led to speculation. These companies slowly
lost favor due to the rise of the Roman Empire and fall of the
Origins of the Dutch Trading Company and its Role in the IPO
The Dutch Trading Company is also
known as the Dutch East India Company or Vereenigde Oost-Indische
Compagnie (VOC). The VOC was the first modern company that introduced
the IPO to raise capital at the beginning of the 17th century. The
original paid up capital was 6,424,588 guilders. The company was able
to raise this large sum of money as the owners had decided to let
shareholders have a part ownership to the company by letting
them buy shares.
The opportunity to buy shares was
offered to everyone living in the United Provinces. Each share’s
worth was 3000 Guilders and this is equivalent to $1,500 USD. The
traders received receipts for the shares that they bought along
with a share certificate issued to document the payment and
ownership of shares.
Establishment of the Dutch East India Company
The VOC was a chartered company
established in the year 1602. It was first modern company to issue
stocks and one of the first MNC (Multi-National Corporation) styled
companies in the world. There were two types of shareholders in the
company. These were the non-managing partners and the managing partners.
The liability of both the parties was limited to the amount of money
they paid up front. Thus, one could say that the Dutch Trading
Company was a limited liability company.
The capital was said to be permanent
until the company was in operation. The investors who wanted to
liquidate their stake could simply do so by selling the shares of the
company. There were six chambers in port and these chambers were
responsible for raising the start up capital. The Enkhuizen chamber
contributed the largest portion of the share capital.
Therefore, you can see that the concept
of owning shares in a public company and the IPO process are not modern
inventions of Wall Street. Owning public shares in a company is a
time-honored tradition dating back to Roman times and the IPO originated
with the Dutch India Company in the early 1600s.