The Formation of the East India Company as a Deal between Entrepreneurs and Outside Investors

Abstract:     
The formation of chartered corporations is usually viewed as an agreement between their promoters and the State with payoffs in the form of monopoly rents, property rights, services or taxation. The present article analyzes the formation of the East India Company as a deal between two groups of investors: Entrepreneurs with established interests in Asian trade who needed equity capital, and outside investors - European merchants, landowners and artisans. Insiders offered the outsiders voice, information and a unique exit option. This privately ordered institutional innovation allowed cooperation between investors in the absence of a share market in 1600 England.

Keywords: Institutions, Joint-Stock, Business Corporation, England, Law, Voice, Exit

JEL Classifications: D23, G30, K22, L14, L22, N23, N43, N83

Working Paper Series