§ [Progress, 26th July.] Order for Committee read.
§ House in Committee.
§ Clause 1 (Mode of obtaining limited liability by future Companies.)
§ MR. WILKINSONproposed to omit the words, other than an Insurance Company."
§ MR. BOUVERIEopposed the Amendment, and said that banks were excepted, because our whole legislation with respect 1446 to banks was of an exceptional character, and, with respect to Insurance Companies, they were at present able to protect themselves and to limit their liability.
§ MR. HENLEYthought that the right hon. Getleman had not at all touched the principle which he had been asked to explain. As to a Bank of Issue, no such bank could now be set up at all, and therefore the observation as to that was quite inapplicable. But the right hon. Gentleman had not at all attempted to go into the question why a bank should have more liability than a coppersmith or any other tradesman. As to Insurance Companies, it was said that they evaded the law by an agreement; but he wanted to know why they should be driven to a special contract to evade the law? If they were to have free-trade, there ought to be no exceptions and no restrictions. If the principle was good in itself, why should it not be good for a bank?
§ VISCOUNT PALMERSTONobserved, that there was a distinction between banks and the Joint-stock Companies contemplated by this Bill. A Joint-stock Company was an association of individuals who collected together their capital to be employed in some profitable undertaking. The functions of a bank were altogether different. A bank was a being in whose custody we deposited our money for safe keeping, and its duty partook of the nature of a trust. The fundamental function of a bank, therefore, was the safe custody of other people's money; but the fundamental function of these associations was the active employment of their own money. This constituted a distinction in the very nature of the two things. It was quite clear that when persons deposited their money in a bank for safe keeping, they were entitled to a greater amount of security from the persons constituting that bank than a mere creditor was against his debtor in matters of ordinary trade. In other countries where limited liability was adopted as a general principle, banks were excepted; and, therefore, it was thought right to except them as well as Insurance Companies from the operation of this measure.
§ MR. HENLEYdid not see why banks, because they were used for deposit, should be excluded from the Act. If a foreign merchant sent over 100,000l. worth of sugar or coffee for sale to a merchant here, that also was matter of deposit.
§ VISCOUNT PALMERSTONThat was agency.
§ MR. HENLEYYes; but he supposed that there might be Joint-stock agencies as well as Joint-stock Banks, and such agencies might be carried on under this Bill.
§ MR. CARDWELLcomplained that a new principle had been introduced by the noble Lord, different from that which was affirmed the preceding day. Yesterday they were told that they had nothing to do but to trust to the principle of caveat creditor; but now they had heard that the creditor who deposited his money in a bank required especial protection; and the same exception was also to be extended to Assurance Companies. So far as he comprehended the argument, it was this, that a bank was to be exempted from this Bill because the business of a bank was of a different kind from that of a trader, and because it was merely a depository of money, which money was always ready to be returned on demand. But how did this apply to Assurance Companies? No doubt there were specialties in the business of banking and also other specialties in the business of assurance, but to all trades and to all branches of commerce the great principles of credit equally applied. The principle of this Bill, then, it appeared, was to be that there must be safeguards, and that people must not rely merely on the principle of caveat creditor. That was a most important admission to obtain on the very threshold of the debate. But still he did not see how this applied to Assurance Companies. If it were true that they were already within the principle of limited liability, why refuse to bring them within the purview of the Bill? He should certainly vote in favour of the Amendment.
§ MR. COWANthought it extremely unwise at the end of a Session that a measure of this description should be persevered in, and which, if passed, was not likely to command the confidence of the country. He hoped the Government would withdraw this and the Partnership Amendment Bill, to which he had a still greater objection.
MR. BRAMLEY-MOOREsaid, that under this Bill for limited liability, a man might be a bankrupt in one street, and a wealthy merchant prince round the corner in another concern, and that this was irreconcilable with sound morality. It was equally important to protect the public as well as shareholders in Companies, and he would call the especial attention of the right hon. 1448 Gentleman the Vice President of the Board of Trade, not to permit Assurance Companies to be brought under the operation of this Bill. No Life Assurance Company could tell whether or not they were solvent, in a less period of time than ten or twelve years; consequently, it was a delusion for a Company to go on dividing profits or paying dividends during the first year of its existence. A Company with a small capital might make large dividends for the first few years—in fact, receive back their capital two or three times over, and then when demands were made upon them they would find shelter and protection under the law of limited liability. Take the case of a man who insured his life to make provision for his family at his death, he paid the premium for ten or fifteen, or twenty years, as the case might be. The Company had had a prosperous time, and during this time had divided large sums in bonuses and dividends—the lives now began to fall in—claims were heavy—the capital was swept away—the assured were left without redress, and the shareholders remained with the dividends and bonuses in their pockets! This had happened over and over again where limited liability existed.
Limited liability existed throughout the United States of America. The following was the result of one year's experience, taken from an American publication of repute—Palmer's Almanack:
In 1841, there were 33,739 bankrupts; 1049,603 creditors; 440,934,615 dollars in debt: the property surrendered amounted to 43,697,307 dollars—but when this came to be realized, it did not produce an average dividend of 1 per cent. The dividends realized in the different States, were as follows:—State of Maine, ½ a cent in 100 dollars; Michigan and Ohio, ¼cent in 100 dollars; New Jersey, 4 cents in 100 dollars; Tenesse, 4½ cents in ditto; 1 cent in Maryland; Mississippi, 6 cents in 1,000 dollars; Kentucky, 8 dollars in 1,000 dollars; Illinois, 1 dollar in 1,500. In Pennsylvania—East Virginia—South Alabama, and Washington, there were no dividends at all.
§ VISCOUNT GODERICHWhat year was that?
§ MR. WILKINSONWere these limited liability partnerships?
MR. BRAMLEY-MOOREThe return contained partnerships of all kinds.
1449 Limited liability for losses with unlimited profits was dishonest, and calculated to provoke and encourage over-trading—and the professed object of this Bill was to check and prevent over-trading. The credit of England, where limited liability does not exist, stood higher in every part of the globe than any other nation; and this was the secret and simple reason why London was made the grand focus and centre for exchange operations from every part of the world. The Americans, who were so acute where dollars were concerned, were compelled to have credits in London, wherewith to pay for their tea in China, and sugar and coffee in Brazil. Take the case of a London Joint-stock Bank, which had been dividing 25 per cent per annum in dividends and bonuses. In four years the shareholders got their entire capital paid back. Suppose, then, at the end of this time the bank failed, was it right, just, and honest, for the shareholders to be allowed to keep these dividends and the creditors to be left in the lurch? Sound policy, and sound morality declared against the measure.
§ MR. BOUVERIEsaid, he did not understand the force of the statement of the hon. Gentleman, because it happened that he knew a country where the principle of limited liability was not acted upon, but where losses to the extent of not less than 50,000,000l. sterling had been sustained in the course of one year by insolvency and bankruptcy, and that country he begged to tell the hon. Gentleman was England. He did not believe that the proposed change in the law would make any difference in the amount of insolvencies or bankruptcies. Whether limited or unlimited liability were the law, there would always be a number of persons incapable of managing their affairs. It should, however, be remembered that, to a certain extent, a burden would be attached to Companies acting under this Bill. They would be required to pay up a certain amount of their capital, and that would operate very onerously in many cases. It was said that the Bill would give rise to a great deal of fraud. He did not doubt it, nor did he expect that any law would be able to prevent fraud. Those who were disposed to cheat would always find loopholes enabling them to impose on those who were ready to be gulled. He did not think that any ground had been stated for excluding Insurance Companies from the operation of the Bill.
§ MR. LOWEsupported the Amendment. No answer had been given to the question why Insurance Offices should not come within the operation of this Act. The principle of the Act was, that the people were the best judges of what was good for themselves; and if Assurance Offices choose to come and pay up 20 per cent of their capital, why should they be precluded from doing so, and partaking of the benefits of the Bill? He objected to any exceptions from the general law.
§ MR. HENLEYsaid, the exclusion of Insurance Companies from the Bill showed the distrust of the Government in the operation of their own principle.
§ MR. M'CANNsaid, it had been laid down by the hon. Gentleman the Member for Wick (Mr. Laing), on a former occasion, that a man was the best judge of the disposal of his own money. If that were so, he did not see why Parliament should interfere against hells and gambling houses.
§ MR. GLYNsaid, that Insurance Companies had transactions in reference to contingent remainders, which extended over a very lengthened period, and were for the benefit of persons not even alive at the time; and he would ask, ought not such parties to have some special securites thrown around them to protect them from loss? It was a question whether there ought not to be liability to the greatest extent, instead of limited liability, in Insurance Companies. He thought that Insurance Companies should not be included in the act.
MR. LLOYD DAVIESThe question was whether, if they omitted Insurance Companies, those Companies could not still go on on their present system. He thought they should be allowed to come under the Act if they thought proper to do so.
§ MR. ARCHIBALD HASTIEsaid that the people of America, where the law of limited liability existed, were anxious to get rid of it. In Massachusetts it was the law that no bank should be established without first raising one-half of its capital; and the practice was for the parties to borrow the money and exhibit it to the inspector, who reported accordingly. Immediately afterwards the money was returned to the lender, and the bank was started without any money at all.
§ MR. SPOONERsaid, that all Insurance Companies enjoyed by their deed limited liability; and he wished to know whether, if they were brought under this Act, they 1451 would still have the option of continuing under the conditions of their deed?
THE SOLICITOR GENERALsaid, that Insurance Companies did not obtain limited liability by their deed. It must be clearly understood that the principle of limited liability was not new to the English law. Liability only arose from the circumstance that every partner was considered to be the general agent of his partners; and if it were possible to limit that general agency in such a manner as to make every person with whom they dealt aware of it, there would be no general liability. Insurance Companies had the opportunity of doing that, for all their contracts being in writing, they had the option of introducing a provision expressly engaging for limited liability. The opportunity of continuing that practice would still remain to them, even if they came under the provisions of this Act. The provisions of this Act would not in the smallest degree supersede the general principles of the law.
§ MR. MONTAGU CHAMBERSre-marked that the special clause in policies spoken of by the Solicitor-General had come into use in this way. A great Company started in Liverpool and in the City, called, he thought, the Sea Insurance Company, in which there were many shareholders who were in business. Some time after it was discovered that the Company was insolvent to the extent of 200,000l. or 300,000l. Unlimited liability attached to the shareholders, and many of them were suddenly astonished by finding themselves ruined because they could not pay the large amount of the Company's liabilities. As the law now stood liability was clearly limited by a special clause to the number of shares subscribed for; and the consequence of striking out the words might be to defeat the object of the Committee which investigated the subject.
§ Amendment by leave withdrawn.
§ VISCOUNT GODERICH moved, in Clause 1, line 10, to leave out "having a capital stock of the nominal amount of not less than 50,000l., divided into shares of a nominal value of not less than 25l. each. The Bill as it stood was inconsistent with the argument that it was for the benefit of the many. It actually tended to create a new monopoly. The objection to the present law was that it supported monopoly; yet by this Bill they were going to give a monopoly in favour of Companies 1452 having a capital of 20,000l. He thought the limit must have been fixed in order to conciliate the opponents of the measure and with the vague idea of preventing fraud. No security was provided that the whole sum should have been paid up. The nominal capital of the Company must be 20,000l., but all that need be actually paid was 4,000l.The Companies which would be excluded from the benefit of this Bill would, in his opinion, be safer than those who would participate in it. If the Government would not agree to his Amendment he trusted they would consent to that of his hon. Friend the Member for Lambeth, for fixing the nominal amount at 10,000l.
§ MR. W. WILLIAMSsupported the Amendment, and considered that this proposed limitation of capital to the amount of 20,000l., as a minimum, was the greatest defect in the Bill. He saw no reason why parties having a capital of 2,000l., or even 1,000l., might not carry on business highly beneficially both to themselves and the country.
§ MR.W. EWARTremarked that one great argument which had been urged in favour of the Bill was, that it would afford facilities to small capitalists for the employment of their money, but "small" and "large" were relative terms. To some, 20,000l. would be a great undertaking, and so would 10,000l., or even 5,000l. The principle of limited liability ought not to be confined to undertakings of great magnitude. Give to all classes the amplest knowledge of commercial affairs, and then leave them to themselves. All other modes of protection were false and vicious. He therefore agreed with the proposal of the noble Lord, which was strictly within the limits of the principle of the Bill.
§ MR. WILKINSONsaid, the effect of the limitation in the Bill would be to deprive the labouring classes of that power of investing their small savings which they ought to enjoy, and which would encourage among them habits of economy, foresight, and frugality.
§ MR. ARCHIBALD HASTIEsaid, the House having decided that the Bill should go into Committee, he felt it his duty to make it as efficient as possible. The limit proposed by the Government was quite inconsistent with free trade, and in its present shape the Bill would be a delusion upon the labouring classes.
§ MR. BOUVERIEobjected to the Amendment proposed by the noble Lord, 1453 because there were a class of undertakings which it was not desirable to invest with the dignity and character of corporations. His noble Friend had lost sight of the Partnership Amendment Bill altogether, and it was the intention of the Government to meet the cases he contemplated by that Bill. The House, however, should provide that this Bill should not be made the instrument for sanctioning mere gambling bubbles. He was willing to admit that 20,000l., was rather too high, and he was therefore disposed to accept the Amendment placed on the notice paper by the hon. Member for Lambeth, for fixing the amount at 10,000l. With respect to the amount of the shares, he was not disposed to reduce the amount to 10l., but he was willing to consent to fix the amount at 20l.
§ MR. MITCHELLsaid, the opponents of the Bill were on the previous day called by the noble Lord (Viscount Palmerston) monopolists. Why should the House establish monoplists having a capital of 10,000l? The course taken by the Government was inconsistent with their professed opinions.
§ MR. HENLEYthought the argument of the right hon. Gentleman was fatal to any particular limit, nor did lie see why any limit should be imposed. They were about to enter upon a new system by which persons of small means were to be enabled to do good for themselves; why then stop half way and baulk your own object? It would be much better to leave the parties to take care of themselves, to look at the nature of the undertaking, and to consider the means they possessed to employ upon it, than to have any limit at all.
THE SOLICITOR GENERALwas of opinion that the Amendment would be inoperative, because it was impossible to establish the principle of limited liability without a registration of the shareholders, which would show the amount of their shares and of their liabilities. The very object of the Bill was to define each man's liability, and this must necessarily state the aggregate amount of the capital to be invested. If, therefore, the Amendment were to be adopted, it would run counter to the whole principle of the Bill. He would entreat his noble Friend not to press his Amendment.
§ MR. CARDWELLsaid, that, without doubt, there must be some specification of the shares; but nothing was easier than to deal with them. But the Committee had a 1454 great principle before them for consideration. He had always understood that the object of those who were friendly to the Bill was to establish a new system and wed together labour and capital, in order; that persons of small income might have the power of combining their capital for the purpose of carrying on useful branches of trade. The Solicitor General, however, said that the Bill was only contemplated for undertakings of great magnitude. On the contrary, the object of the Bill was to enable small capitalists to aggregate themselves for all useful purposes—and there were many useful porposes which did not require a capital of 10,000l. The argument used by the supporters of the Bill was, that it radically destroyed monopoly; but he contended, if this Bill were passed, limiting the amount of capital to be invested to not less than 10,000l., that, so far from cutting up monopoly, they would be creating monopolies which were at present unknown to the law. This Act would throw into the hands of any person who could command 10,000l. a monopoly which he could not at present enjoy, and would inflict the greatest injustice on all those who were not able to command that amount of capital. That, however, was not the only injustice which the Bill would perpetrate. The persons who would furnish the capital of 10,000l. would be those to whom the loss of such a sum would be a small matter, provided it brought them into competition with the humbler capitalists, and had the effect of beating them out of the field. He would, therefore, warn the small traders to be very circumspect in accepting such a Bill as this; the effect of which, he believed, would be to enable the large capitalists to monopolise the whole of those trades in which the money of the humbler classes might otherwise be invested. With regard to those great capitalists who had seats in Parliament, he begged here to remark that he was ashamed to hear the sneers which had been cast upon those men, as if they came down to this House only to promote their own interest. It was with pain that he had heard reference made, in the course of these debates, to Lord Overstone, whose high character it was impossible for any man to impeach. But those great capitalists, against whom these sneers were directed, were having a mighty rod prepared for them by which they would scourge the small trader if this limitation of capital should be maintained. The power of that limitation would enable 1455 them to inundate the small capitalists, who would be utterly unable to contend with the competition which would be brought against them. But if there were no limitation, and the law was made equal to everybody, whatsoever might be the amount of their property, then the people might have the advantage—though of course never equal to that which wealth would command—of a legislative enactment like the present. At all events there would be one uniform law, and the Legislature would not be responsible for any advantages which one class of the community might enjoy over another.
§ VISCOUNT PALMERSTONsaid, that nothing was so admirable as the zeal of a new convert, and he was sure his noble Friend who proposed the Amendment must be nearly in a state of ecstasy at having received the support of one of the most zealous advocates of unlimited liability. But with all deference, he thought there were reasons, without at all involving the general principles upon which the Government had recommended this Bill, why they might reject the particular proposal which had been made by his noble Friend. He had already contended that this Bill was founded on the principle of free trade, and he still maintained that doctrine; but it was also founded upon another principle. It was proposed to give to those associations which it was intended to create by this Bill that character which the law now gave to Joint-stock Companies. They would be invested with a corporate character, and have the privilege of suing and of being sued. They would have a corporate seal, and would not be simply an aggregation of individuals, but would possess legal privileges, and be distinguished by legal conditions. If, then, there were to be given to a number of individuals this corporate character and those legal privileges, there should at least be some monetary evidence of their existence; and he thought that a capital of 10,000l., while it would be quite sufficient to show that it was a real and bonâ fide body, was not too much to require in order to entitle it to be recognised as a Joint-stock Company. But to confer such privileges and conditions on a set of persons whose shares were merely nominal, and whose capital might not exceed 20l., would really be bringing ridicule upon all corporate bodies. The right hon. Gentleman the Member for Oxfordshire, had stated an instance on which he had founded an argument. He said it was once wished 1456 to establish a gas company in a village, but which would not require so large a capital as 10,000l., and therefore this Bill would preclude any such Company from being formed. He (Viscount Palmerston) did not admit the force of that argument, because it should be recollected that, although it was a condition of the Bill that the capital should be 10,000l., yet the shareholders would not be compelled to pay up more than 10s. on each share of 20l., making only 1,800l. in the whole. He therefore thought that a capital of 10,000l. was not too large. He would mention a case in which the want of this principle of limitation had been severely felt, and had been producing very extensive injury in the north of Ireland. There was a district where there was a great extent of coal and iron. Some persons took a lease of that district; their capital was not sufficient to enable them advantageously to work the district. If they had been able to do so the counties of Roscommon, Leitrim, and Sligo would have derived immense benefit from it. Well, they could not get the money required. They tried to obtain a charter of limited liability, but they invariably failed. They were told to go to Glasgow and raise money; but the Glasgow men said, "No, you cannot give us sufficient security, and, unless you do so, we will not lend the money." They did not like to go tied hand and foot into the power of the Glasgow or Liverpool speculators, and consequently this had retarded the development of the prosperity of Ireland. This Bill would set them free, and they would be able to obtain from the small farmers and others such an aggregate of capital as would enable them to work with advantage. With regard to poor people, when his hon. Friend had brought in his Partnership Bill, that would meet their case, and would enable the smallest contributions to be given to one person who would represent the concern, so that the two Bills would meet every purpose. He certainly thought it would not be advisable to adopt the proposal of the noble Lord, though he was prepared, as had been stated by his noble Friend, to reduce the amount of capital from 20,000l. to 10,000l.
§ MR. LOWEwas anxious to call to the attention of the Committee that that which the noble Lord and the Solicitor General termed an absurdity already existed, and that a Company with 1s. 6d. shares and 20l. capital could be registered under the Joint-stock Company's Act and become a 1457 corporation. As this was so, he saw no reason why they should seek to narrow the limits of the present Bill, or seek to interfere and do that which they did not do with regard to corporations. As to the amount of capital, he maintained that, instead of a small capital being the badge of fraud, a large capital was so. He thought also, that experience showed that the shares had better be small, as the Joint-stock Companies ought to be ready-money concerns; and, when the shares were small it was more likely that they would be paid up at once and the concern carried on on bonâ fide principles. For these reasons he felt bound to support the Amendment of the noble Lord.
§ LORD JOHN MANNERSsaid, that they had had, on very high authority, a definition of respectability, which consisted, it was said, in keeping a gig, and the noble Lord (Viscount Palmerston) had given them a definition of "reality," which was l0.000l. He (Lord J. Manners) ventured to assert that neither of these definitions was based upon principle. He thought that if the present Bill was based upon principle, there ought to be no limitation either of the amount of capital or shares, and he should, therefore, support the Amendment of the noble Lord.
§ VISCOUNT GODERICHsaid he should press his Amendment to a division. His proposition had received the support, not of one class, as the noble Lord at the head of the Government implied, but of the whole Committee.
THE SOLICITOR GENERALhad found it impossible to provide machinery for carrying out the Bill without fixing the capital at a considerable amount.
§ MR. HENLEYthought the objection of the hon. and learned Gentleman was unfair to the noble Lord. The noble Lord had raised a great question of principle, and if his Amendment were adopted it would be easy to provide suitable machinery.
§ MR. COWAN moved that the Chairman report progress.
§ MR. MONTAGU CHAMBERSsaid, if the Bill passed in its present form it would be a fiction and a delusion, and he should vote for the Amendment.
§ MR. SPOONERdisclaimed the imputation of the noble Lord (Viscount Palmerston), that he was a convert. He was no convert, but was as much opposed to the Bill as ever. On the ground of consistency, however, he felt bound to support the Amendment.
§ The Committee were about to divide, when
§ VISCOUNT PALMERSTONsaid, that he would not trouble the Committee to do so; and the first part of Lord Goderich's Amendment was agreed to.
§ MR. BOUVERIEsaid, that although he had agreed to the omission of the words "down to and including 20,000l.," yet he would not agree to the omission of the words "with respect to the nominal amount of the shares being 25l.," though he was prepared to reduce that sum to 20l.
§ VISCOUNT GODERICHsaid, that he would take the sense of the Committee upon this question, and moved the omission of the words, "divided into shares of a nominal value of not less than 25l.
§ MR. CARDWELLsaid that, if the Amendment of the noble Lord were carried, there would be no definition as to the value of the shares inserted in the Bill. He thought that the conclusion was most salutary which had been come to, that the amount of capital should be left to the discretion of the Companies; but he thought that, in order to prevent fraud, it would be requisite to limit the amount of the shares, though he thought 25l. was much higher than was necessary for such a purpose. He felt, under these circumstances, compelled to vote against the Amendment of the noble Lord.
§ Question put, "That the words proposed to be left out stand part of the clause."
§ The Committee divided:— Ayes 88; Noes 34: Majority 54.
§ House resumed.
§ Committee report progress.