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Solomon's Knot by Robert D. Cooter, Hans-Bernd Schäfer

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Chapter 9

Financing Secrets—corporations

How did the corporation become the dominant form of business organization? To answer this question, recall chapter 1’s example of the spice trade between Europe and Asia in the seventeenth century: in a port such as London, a bold ship’s captain would propose that investors finance a voyage to Asia to obtain spices. The investors had to provide capital for a voyage lasting at least two years, and the ship’s captain had to share secrets about how to get to Asia and where to go when he arrived. When the voyage succeeded or failed decisively, the captain and investors usually ended this collaboration. Exit after success occurred through a general court at the dock. Similarly, in twentieth-century Silicon ...

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