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Origins of the IPO and the Dutch Trading Company

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 Roman Republic.

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.


Disclaimer
This page was created for user generated content, a place for the public to upload articles on various topics related to going public, reverse mergers, public shells, raising capital and other financial matters. These articles are posted as basic information for the public. Various authors have written these articles and as the Tiber Creek Corporation has not verified the authenticity of the content, they make no claims or assume any responsibility for the information therein. The statements and opinions expressed here are those of the authors and/or contributors and not necessarily those of the Tiber Creek Corporation.

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