History of the Share Certificate
Stock certificates are a legal document that represents ownership of shares in a corporation. A certificate confirms the number of shares owned and the corresponding participation of a company. The first stock certificates were created in the early 17th century as a way to bring together many investors in a project. Essentially the first corporations, stock certificates were issued to investors who put their money into the group’s investment capital. Many of the early pilot companies were created with the goal of using the investment capital to build bridges and highways. With the growth of financial markets, the privileges and rights granted to certificate holders have changed over the years.
The Dutch East India Company is the first case where share certificates were issued and used to represent ownership in the company. In 1602, the Estates General of the Netherlands issued a royal charter to found the Dutch East India Company. The Dutch East India Company issued paper to its investors in 1606. Investors in the Dutch East India Company were issued paper certificates as proof of their ownership of shares. This is the first recorded instance of share certificates issued to investors. Investors were able to trade their shares on the original Amsterdam stock exchange, another breakthrough in the history of financial markets.
After the revolutionary invention of the Dutch East India Company, the share certificate as currency for share ownership began to grow. By the end of the 18th century, the trade in stock certificates as a means of exchanging corporate ownership was growing exponentially. At that time, three types of certificates were used: bonds, which were certificates representing investments in public debt; banking actions; and company shares. In 1792, the New York Stock Exchange was created to meet the great demand investors had for a centralized trading place. NYSE brought greater price transparency and liquidity to investors.
The growth of financial markets from this point on has been widely documented. The New York Stock Exchange has gone from being a local exchange under a tree to being the largest financial trading floor in the world. Billions are exchanged every day. The growth of the stock markets was a byproduct of the industrialization of the United States. Railroad companies issued stock certificates that were in great demand in the 1830s. This catapulted stock market activities to center stage in American life. The financial industry beginning in the 1830s would shape America’s innovation and entrepreneurship.
Despite the economic expansion of the United States, the stock certificate was a national symbol. It symbolized for America their common achievement in creating a better place. Quite often, the certificates themselves had and still have eagles and flags printed on them. With the exponential growth of the American economy, all industries have benefited from investor capital investment through invention, such as: the aerospace industry, the mining industry, the rail industry, the telecommunications industry, among many others. Paper stock certificates are now a rare sight in stockbrokers’ offices, a dwindling invention. Its replacement are electronic alternatives that represent share ownership that offer greater convenience, ease and profitability than their paper counterparts.
Despite their demise, interest in paper certificates remains considerable. Scripophilia, the hobby of collecting old certificates, has grown in recent years. Today, paper stocks are considered both historically valuable and collectible, but are in most cases inconvenient in modern times. It is quite evident that the stock certificate was a great innovation and has influenced the financial markets and the world in many ways.