A:

The Dutch East India Co. was the first company to offer shares of its business to the public, effectively conducting the world's first IPO. It also played an integral role in modern history's first market crash. The Dutch East India Co.—often called VOC, short for its Dutch name: Vereenigde Oost-Indische Compagnie—was formed in 1602 by a royal charter granting a 20-year monopoly on trade with the East Indies and sovereign rights in any newly discovered territories.

These incredible powers were given to a collection of merchant ships that were former competitors in the spice market. The merchants would form limited liability companies where investors would put up money for voyages in return for a percentage of the profits if voyages were successful. The problem was that the spice supply was unpredictable.

Two ships arriving at once would cause a supply glut and drive down prices, hurting profits for both merchants and investors. To hedge against this, merchants banded together to form the VOC and essentially bribed the crown every 20 years to extend its charter.

Tulipmania Hits the First Company to Issue Stock

Once the charter was taken care of, the merchants issued permanent shares in an ongoing enterprise—the first stock IPO—to raise capital to outfit a proper fleet. The VOC then used bonds to fund individual voyages and became the first multinational corporation when it set up headquarters in Asia.

From 1602 to 1696, the company paid a regular dividend that yielded from 12% to 63%. In 1634, VOC ships carrying tulip bulbs set off the infamous tulip bulb craze that resulted in a market crash. Despite a violent whipsaw in its share price—up 1,200% from the IPO price and back down to 300% from the IPO price—the company weathered the crash easily.

At the height of its success, the VOC boasted 40 warships, 150 trading vessels, 10,000 professional soldiers and many more employees and subjects. But time and competition erode all monopolies and such was the fate of the VOC. In 1800, just shy of its 200th year, the now-destitute VOC was formally dissolved. (See also: Early Monopolies: Conquest And Corruption.)

 

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