How did the East India Company change the world?

Uniforms of the East India Company's private army, circa 1843
Uniforms of the East India Company's private army, circa 1843
Hulton Archive/Getty Images

What comes to mind when you hear the word "corporation?" Maybe a giant, faceless conglomerate? Ruthless captains of industry? Perhaps you think of corporate scandals like Enron and WorldCom. In fact, the unscrupulous plundering done by some modern-day corporations pales in comparison to the activities carried out by one of the world's first corporations: the British East India Company (EIC).

The concept of corporations was first established under ancient Roman law [source: University of Virginia]. But it wasn't until England emerged from the Middle Ages that it created what we recognize as the modern corporate structure. It all began on Dec. 31, 1600, when Queen Elizabeth I granted a charter to the British East India Corporation, naming the corporation "The Governor and Company of Merchants of London, trading with the East Indies." The corporation conducted business in the East Indies (land that we now consider India and the Middle East) at the behest of the queen.

The East India Company established a few major precedents for modern corporations. But it also shaped the world in countless other ways. With both the financial and military support of the Crown, the EIC served as an instrument of imperialism for England. The company had its own private army and raised soldiers in the areas it subjugated. Its expansionism spurred several wars that produced at least two sovereign nations. Among its many claims to fame (and notoriety), the EIC indirectly built Yale University, helped create two nations and was the world's largest drug-dealing operation in the 18th century.

The company was ruthless in its quest for profits. Parliament even called the EIC tyrannical. However, without the EIC, England may have never developed into the nation it is today.

Read on the next page how this giant global corporation was created.

The Creation of the East India Company

Queen Elizabeth I, depicted here on the occasion of the Spanish Armada's defeat in 1588, chartered the East India Company 12 years later.
Queen Elizabeth I, depicted here on the occasion of the Spanish Armada's defeat in 1588, chartered the East India Company 12 years later.
Hulton Archive/Getty Images

When the British East India Company (EIC) was formed in 1600, there were already other East India Companies operating on behalf of France, the Netherlands, Spain and Portugal. Thanks to the naval route that explorer Vasco da Gama discovered, riches from the Orient were pouring into Europe. With other nations importing fortunes in goods and plunder, Queen Elizabeth decided England should get some, too. So she granted the charter for the East India Company.

Queen Elizabeth used more than just royal decree and coffers (treasury funds) to help merchants and explorers establish trade on behalf of England in the East. The charter she issued created the first official joint-stock corporation. A joint-stock corporation is composed of investors who are granted shares in a company. In return for their initial investments, shareholders are given dividends, or percentages, of the company's profits based on the number of shares the investor holds.

Shares and dividends were not new concepts in England. Twenty years prior to the EIC's charter, Queen Elizabeth was already a major stakeholder in Sir Francis Drake's ship, the Golden Hind. Although it's not certain how much she made from Drake's voyages to the New World, the captain himself made a 5,000 percent return on his initial investment [source: Hartmann].

So a joint-stock corporation like the one Queen Elizabeth formed in the East India Company wasn't much of a financial leap. But it was the first of its kind, and following the establishment of the EIC, its Dutch, French and other competitors followed suit. But granting charter to the EIC wasn't the only part of the prototype for modern corporations that Queen Elizabeth devised.

Under the auspices of her royal authority, Elizabeth also limited the liability of the EIC's investors -- including hers. This made the company the world's first limited liability corporation (abbreviated as LLC in the United States and Ltd. in the United Kingdom). Under an LLC, the investors in a corporation are granted protection from losing any more money than their initial investments in the venture. If the company goes under, the investors only lose the amount of money they put into the LLC. The company's outstanding debts aren't divvied up among its investors [source: IRS].

Queen Elizabeth covered any losses or debts owed by the East India Company with the royal coffers; modern LLCs are subject to bankruptcy procedures, where creditors may be forced to take pennies on the dollar or nothing at all if a corporation goes under.

Although it took several decades for the East India Company to become truly profitable, once it did, the company rose to global domination -- both in business and in government. In a symbiotic way, as the company grew in power, so, too, did England. So it's no surprise that during its existence, the company was directly involved in major geopolitical changes: The EIC literally changed the course of history. Two nations, India and the United States, revolted against East India Company rule, which led to the establishment of their current political structures.

Read how the company inadvertently created the United States on the next page.

The East India Company and the United States

A depiction of the Boston Tea Party, a result of the Tea Act which favored the East India Company and punished competitors.
A depiction of the Boston Tea Party, a result of the Tea Act which favored the East India Company and punished competitors.
Life Pictures/Mansell/Time Life Pictures/Getty Images

American and British schoolchildren are taught about the infamous Tea Act of 1773, which led to the rebellious Boston Tea Party. But exactly why the Boston colonists threw thousands of pounds of tea into Boston Harbor may be less clear. It's actually due to collusion between the government and the East India Company.

The Tea Act was designed by Parliament specifically to help the EIC unload the millions of pounds of unsold tea in its English warehouses. The Americas were the designated recipients (like it or not) of the surplus tea. The act was meant to enforce the EIC's monopoly on tea in the colonies. It would be like the United States government forcing all of today's Americans to purchase Apple computers only. Ultimately, the Tea Act allowed the EIC to drive its competition out of business. Colonists deemed this an unfair practice -- government was supporting one business's interests at the expense of the liberty -- and it gave rise to the famous slogan "no taxation without representation" [source: Hartmann].

India ­also staged revolutions to buck the yoke of imperialism. Their efforts were focused on thwarting the East India Company and the British government. Read about India under EIC rule on the next page.

The East India Company and India

Bengali sepoys, Indian soldiers that revolted 1857 against the exploitive practices of the East India Company
Bengali sepoys, Indian soldiers that revolted 1857 against the exploitive practices of the East India Company
Hulton Archive/Illustrated London News/Getty Images

Perhaps it was being stationed halfway across the world from the East India Company's home offices in London. Or maybe it was the potential for wealth afforded by India's riches. Either way, Elihu Yale (the benefactor for whom Yale University is named) was tantalized into building his own smuggling operation. His dismissal from his post as the EIC governor of Madras was a light sentence compared to the fates of others who ran afoul of the company.

Perhaps Yale got away with his life because of the work he'd done on behalf of the EIC. Thanks to factories (colonies or settlements) run by men like Yale, the East India Company was able to subjugate India and its tribal rulers. The company built forts in India to house its private army. The EIC also raised soldiers from within the native populations. With the establishment of martial rule (the government set up in a land occupied by military) profits could be garnered easily. Perhaps the most profitable export for the company's India operations was opium.

By 1750, the EIC had established control over India's most prolific sites of opium cultivation. The British exported the opium to China, which eventually resulted in two opium wars between the countries over the drug's importation. By 1793, Britain had a monopoly on opium, and no Indian grower was allowed to sell his crops to any other company [source: PBS].

The British colonialism carried out through the EIC was pretty brutal. It included the forceful seizure of land and deposing of rulers. Tribute, taxes and loyalty were extracted from average citizens through methods up to and including torture [source: Emory University]. Ultimately, the British presence proved to be unacceptable for some Indians. A number of sepoys (native Indians who joined the EIC's militia) revolted against the EIC's rule during the Sepoy Rebellion of 1857. Some historians consider this India's first war for independence, even though it was quelled by the British army. Afterward, Great Britain officially occupied the country. India would remain an English colony until 1947, when it became a constitutional republic [source: CNN].

The eventual creation of modern-day India and the United States are but two major world events that have the East India Company's fingerprints. It would be nearly impossible to trace the entire legacy -- both positive and negative impacts -- that the East India Company had on the world. With direct involvement in so many different aspects of our world, perhaps the question isn't "how did the East India Company change the world," but "how didn't it?"

For more information on business and other related topics, visit the next page.

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