The First Equity Shareholders
I'm Andy Temte and welcome to the Saturday Morning Muse! Start your weekend with musings that are designed to improve financial literacy around the world. Today is October 11, 2025.
Last week, we concluded our exploration of insurance's democratization by asking an important question: where did all that insurance premium money go? By 1910, insurance companies were collecting hundreds of millions of dollars annually, managing massive investment portfolios to ensure they could pay future claims. The answer lies in securities markets—particularly stocks, which represent ownership stakes in companies.
But here's what we need to understand first: you hear about the stock market all the time, but what exactly is a share of stock, and where did this concept originate? Before insurance companies could invest in corporate equity, someone had to invent the idea that company ownership could be divided into shares and traded. Over the next few weeks, we'll explore the historical journey from the first shareholders, to the first equity securities markets, to the modern definition of stock ownership.
That story begins not in London coffee houses, but in ancient Rome.
Rome's Public-Private Partnerships
Picture Rome around 200 BCE. The Republic is expanding rapidly, conquering new territories and building the infrastructure of empire. Roads must be constructed, aqueducts built, temples erected, and taxes collected from newly conquered provinces. But here's the problem: the Roman government didn't have a large permanent bureaucracy to manage all these projects.
The Romans developed an ingenious solution: they contracted with private companies called publicani. These weren't modern corporations, but they operated on a surprisingly similar principle—multiple investors pooling capital to undertake projects too large for any individual, with each investor owning a proportional share of the enterprise.
The organizational structure was called societas publicanorum—literally "societies of public contractors." Here's how they worked: wealthy Romans would contribute capital to fund a specific government contract, perhaps collecting taxes from the province of Sicily or building a section of the Via Appia. Each investor owned a share of the company proportional to their capital contribution. Profits (or losses) from the venture would be divided among shareholders based on their ownership stakes.
What made this remarkable was the separation of ownership from operation. Not every shareholder needed to actively manage the tax collection or road construction. Some investors were passive shareholders—they provided capital and received their share of profits without daily involvement. This separation of ownership from management is the fundamental innovation underlying all modern stock ownership.
These companies could be enormous. The publicani who collected taxes from the province of Asia (modern-day Turkey) managed one of Rome's largest revenue sources. The shareholders in these ventures included some of Rome's wealthiest and most powerful citizens, and their business dealings were sophisticated enough to be discussed in the Roman Senate.
Medieval Merchants Complicate the Picture
Fast forward nearly fifteen hundred years to medieval Venice around 1200 CE. The city is a maritime trading powerhouse, but ocean voyages required substantial capital. Ships, crews, and cargo all cost money, and voyages lasted months or years. Few individual merchants possessed both the capital and willingness to risk everything on a single expedition.
Italian merchants developed the commenda contract—an arrangement between a traveling merchant and a capital provider. The investor would provide all the voyage capital—paying for the ship, crew, and cargo. The traveling merchant would contribute their labor, expertise, and willingness to spend months at sea facing storms, pirates, and disease. Profits would be split, typically 75% to the investor and 25% to the traveling merchant.
Notice something interesting here: the merchant received 25% of profits despite contributing zero capital. Why? Because medieval merchants were solving a problem the Romans didn't face—how to value labor and expertise alongside pure capital contributions. The traveling merchant's 25% share compensated them for their skill, effort, and the physical dangers they faced during months at sea.
This wasn't lending—the capital provider wasn't guaranteed repayment. They were accepting genuine equity risk. If the ship sank or was captured by pirates, they lost their entire investment. But if the voyage succeeded, they shared in the profits based on a pre-agreed formula that valued both money and expertise.
The commenda solved several problems simultaneously. It allowed merchants with expertise but limited capital to undertake ambitious trading expeditions. It gave wealthy individuals with capital but no maritime experience a way to participate in profitable trade ventures as equity partners. And it distributed risk—an investor could spread capital across multiple commenda contracts rather than betting everything on a single voyage.
Sound familiar? This is the same risk-pooling principle we explored in our insurance series. But instead of pooling risks to protect against losses, the commenda pooled capital and risks to pursue profits. The capital provider was an equity owner—they shared in both the upside and downside of the venture.
From Simple Shares to Complex Structures
What connects Roman publicani and Venetian commenda contracts is their shared recognition that equity ownership could be divided among multiple parties—but they approached this division differently.
These systems worked because they established clear, predictable rules—even if those rules weren't always strictly proportional to cash invested. The Roman system was simpler and more directly proportional to capital. The commenda was more sophisticated, recognizing that valuable contributions come in forms beyond money. But both gave equity owners clarity about what they owned and what they could expect if the venture succeeded.
This predictability was essential for attracting equity capital. Without clear ownership stakes and profit-sharing rules, investors would demand higher returns to compensate for the uncertainty about whether they'd be treated fairly.
The Missing Piece: Transferability
Here's what the Roman and medieval systems couldn't do: they couldn't easily transfer ownership stakes. If you became an equity owner in a Roman tax collection contract or a Venetian trading voyage, you were locked in until the venture concluded. Your capital was tied up for months or years, and you couldn't easily sell your ownership stake to someone else if you needed cash.
This lack of liquidity—the ability to turn shares into cash quickly—created real costs. Equity investors demanded higher returns to compensate for having their capital locked up for extended periods. And it meant that only the wealthiest citizens could participate—you needed to be rich enough that tying up capital for years didn't threaten your financial security.
The Foundation Is Laid
The Roman publicani and medieval commenda contracts established principles still fundamental to modern equity securities:
Multiple investors can pool capital for ventures too large for individuals, each owning a proportional share.
Ownership stakes can be divided based on capital contributions, creating clear equity positions.
Passive shareholders can participate without managing daily operations.
Equity owners share proportionally in both profits and losses.
Clear rules for dividing profits make ventures attractive to equity investors.
What they hadn't solved yet was the liquidity problem—how to let equity owners exit their positions before ventures concluded. That solution would emerge in the Dutch Republic of the early 1600s, when maritime trade, financial innovation, and desperate need for capital converged to create something entirely new: the first permanent joint-stock company with transferable shares of equity ownership.
Next week, we'll discover how Dutch merchants facing the enormous capital requirements of Asian trade invented the modern corporation, and how Amsterdam became home to the world's first real stock exchange.
Until next week...
Grace. Dignity. Compassion.
