§ [Progress, 27th July.] Order for Committee read.
§ House in Committee.
§ Clause 1.
§ MR. BOUVERIEsaid, he thought it was generally conceded that the minimum amount of shares should be 10 l., and he, therefore, proposed to fix the amount at that sum, which he considered a fair compromise, on the understanding that 20 per cent was to be paid up.
MR. BRAMLEY-MOOREsaid, he would offer no objection if the right hon. Gentleman would insert a clause that the whole amount of the shares should be paid up.
§ MR. W. WILLIAMSsaid, he did not wish to divide the Committee, and on the understanding that the Vice President of the Board of Trade would consent to provide that half the amount of the shares should be paid up he would withdraw his Motion, although he thought that 5 l. shares fully paid up would be preferable.
§ MR. CAIRNSsaid, he considered that the amount of the shares should be unlimited, and was of opinion that no nominal amount should be inserted in the Bill, but that the Companies should be left to fix the amount of the shares themselves. On 1518 the bringing up of the Report he should move an Amendment to that effect.
§ VISCOUNT GODERICHsaid, he trusted that his right hon. Friend would not consent to the proposition that there should be as much as 50 per cent paid up.
§ MR. BOUVERIEsaid, he could not receive the concession of the hon. Member for Lambeth (Mr. W. Williams), for he thought it was sufficient that 20 per cent should be paid up.
§ Amendment, by leave, withdrawn.
§ MR. APSLEY PELLATTsaid, he did not see why the amount of shares should not be left entirely to the convenience of Companies.
§ MR. GLYNsaid, he regretted that the Vice President of the Board of Trade had changed the amount originally proposed, 25 l., and reduced it to 10 l. He admitted that some compromise became necessary, but he foresaw that there was a class of the community—namely, shopkeepers in small towns, who would be injuriously affected by the change. The claims of that class of small shopkeepers had not been duly considered, and he was unable to discover what security had been provided to prevent petty Joint stock Companies from being started in small towns, for the purpose of running down the petty traders.
§ MR. BASSsaid, he wished to take the earliest opportunity of explaining a point on which some misapprehension existed. He had been represented in The Times newspaper as being one of those large capitalists who were charged with having conspired together for the purpose of defeating the measure. He begged, first, to say that he was not a large capitalist, and, in the second place, to state that so far from opposing the measure, he gave it his cordial support.
§ The words "ten pounds" were then inserted.
§ MR. CAIRNSsaid, he would now move to insert the Amendment, of which he had given notice.
§
Amendment proposed, in page 1, line 12, after the word "each," to insert the words—
and any Company consisting of not less than six members associated together in partnership under a deed of settlement for any trading or other purpose (except banking or insurance), and having its capital stock divided into shares of such nominal value as aforesaid, transferable either with or without the assent of all the members, may obtain from the registrar of Joint-stock Companies a certificate of limited liability, in manner following, namely—
1519
His object was to prevent the exclusion of those Companies from the benefit of the Act the number of the members of which did not amount to twenty-five, as required by the Joint-stock Companies Act. If he were asked why he fixed six as the limit, his only answer would be that a line must be drawn somewhere, and there were seldom so many as six members in an ordinary partnership concern.
§ MR. BOUVERIEsaid, he must oppose the Amendment, although he was willing to allow that it was entirely a question of degree; but the Committee would observe that the whole Bill was based on the Joint-stock Companies Act. It was essential to distinguish what was a Joint-stock Company and what was an ordinary partnership. The number of shareholders in a concern might be so numerous as to render it impossible to carry it on upon the principles of an ordinary partnership; and it was believed that any business in which there were more than twenty-five members would be unmanageable on those principles. The number of twenty-five shareholders, therefore, was the minimum of a Joint-stock Company. But the Amendment would reduce that minimum to six. He did not think Parliament was prepared to adopt such a proposal, and he should therefore oppose it.
§ MR. ARCHIBALD HASTIEsaid, his objections to the Bill were entirely based upon the ground stated by the hon. Member for Kendal (Mr. Glyn)—namely, that it would give an enormous power to capitalists by which they might effect the ruin of very small traders; and if the Amendment of the hon. and learned Gentleman should be carried it would make it four times more easy for large capitalists to work mischief in that direction. He should therefore oppose the Amendment.
§ MR. MALINSsaid, that a Joint-stock Company might even now consist of less than six partners, provided their shares were transferable without the consent of all the partners; he saw no reason, therefore, for objecting to the Amendment, which proposed that the Bill should apply to any partnership consisting of six members if they should choose to make their shares transferable without the consent of all the partners.
§ MR. MITCHELLsaid, he should support the Amendment, because it would bring the Companies under the system of registration which was to be established by 1520 the Bill, but which was not to be adopted by the Partnership Bill.
§ MR. BOUVERIEsaid, that under the Bill now before the Committee no person would be liable beyond the amount of his own share, but by the Partnership Bill a person who took any part in the management of the concern would be liable to the full extent of his property.
§ Question put, "That those words be there added."
§ The Committee divided:—Ayes 27; Noes 39: Majority 12.
§ MR. CAIRNSsaid, he would now move that the words in the clause, "of not less than 20 per cent" (being the amount to be paid up on the shares), should be omitted. The tendency of that provision would be to induce parties to have a smaller capital than that which was proper for their undertaking. Various modes might be resorted to by which that provision of the law might be evaded; and, so far from its being necessary for the protection of the public, it would, in his opinion, work very perniciously. It was much better to leave the Companies to judge for themselves as to what should be the amount of their capital, and what proportion of it should be paid up.
§ MR. BOUVERIEsaid, it was the universal rule of Parliament to require the shareholders of railways and other Companies, before having the benefit of an Act of the Legislature, to pay up a portion of their capital. It was a provision intended to guard against bubble Companies, and it would at the same time afford a test that the Companies were established for bonâ fide purposes. He could not, therefore, assent to the Amendment.
§ MR. CARDWELLsaid, he was sorry the right hon. Gentleman the Vice President of the Board of Trade resisted the Amendment. The security to the creditor of these Companies was not to be found in the amount of capital paid up, but in the amount of liability which remained under the terms of the Act, and which the creditors had the power to enforce. The Standing Order to which the right hon. Gentleman referred was no security whatever, as it was constantly evaded. According to the provision of the Bill, the shareholders would have to pay up whether the exigencies of the concern required it or not. Why should that be? But, suppose the money paid up, it could by various fraudulent devices be returned to them again. Or, suppose it were expended in 1521 the concern, in either case what additional security would the creditor have? By leaving the parties to act as they thought proper inter se, and at the same time requiring a register of their liabilities, and making that document the only evidence between the shareholders and the public, Parliament would give to the creditor a much better security than by insisting upon the paying up of any portion of the capital. Indeed, he regarded that portion of the capital which was not paid up a much better security than that which had been paid up. The Amendment of his hon. and learned Friend (Mr. Cairns) had three recommendations—it would leave the shareholders free to manage their own business; it would afford a greater security to the creditor; and it would prevent the waste of money in useless litigation.
§ MR. MALINSsaid, he was of the same opinion. He would advise the Committee not to interfere with the question of paid-up capital, which was purely a matter of settlement between the Company and the public. If a man were prudent he would inquire into the character of the Company before investing his money in it, and if he were not a prudent man an Act of Parliament would not make him one. In the event of the Amendment being rejected the amount provided should be paid up simply for the purpose of complying with the Act of Parliament, while there could be no security against its being again handed over to the shareholders. There was no sound reason why persons constituting a Company on the principle of limited liability should be required to pay up a portion of their capital, when any two or three persons might establish themselves into a Company on the principle of unlimited liability without being required to pay up a single shilling.
§ MR. GLYNsaid, he should oppose the Amendment, because it would enable parties to get up Companies without having any capital whatever.
§ MR. CAIRNSsaid, that finding there was not any very strong feeling in favour of his Amendment, he would not trouble the Committee to divide.
§ Amendment negatived.
§ Clause agreed to; as were also Clauses 2 to 6 inclusive.
§ Clause 7 (Members of certificated Companies to be free from personal liability.)
§ MR. CARDWELLsaid, that the question which had suggested itself to his mind was what remedy any creditor was to have 1522 against any shareholder in a Company, and what was the practical value of the register provided by the Bill. He submitted to the Committee that a case such as the following might be carried out any day by any set of persons who might desire to defraud their creditors. They might call up the whole of the capital of the Company, record that fact, and thereon the liability of all the shareholders would come to an end for ever, while the corporation would remain armed with the powers conferred on them by the Act. Then as to the capital; it could be returned to the pockets of the shareholders, so that the payment of the capital would have been a mere farce, the corporation still continuing in existence with the powers they receive under the Act. There would thus be no interest on the part of the shareholders to watch the conduct of the directors, the shareholders having received back their capital, and having no liabilities for future capital. Should they even share in the profits arising from the unscrupulous proceedings of the directors, they would be still exempt from any loss that might be incurred. As the Bill stood the registration of the liability of shareholders would be a delusion, and would be calculated to mislead the public who might entrust their money with those Companies. By the Amendment of which he had given notice, the partners in a concern would be left to pay up or not, as they pleased; they would have a greater interest in its solvency, and the register would show a creditor the precise amount of their liability. The provision was, upon the face of it, a departure from precedent, and would give rise to frauds, while his proposition would afford the necessary security to the public.
§
Amendment proposed, in page 4, line 22, to leave out from the word "liability" to the end of the clause, in order to add the words—
shall be liable to pay the debts of the Company to an amount equal to, but not exceeding the nominal value of the greatest number of shares held by him at any one time within one year next preceding the date of the judgment or decree against the Company under which his liability is sought to be enforced.
§ MR. JOHN MACGREGORsaid, he opposed the Amendment on the ground that it would impose a great hardship on the shareholders. The public were able to act for themselves better than Parliament could act for them.
§ MR. LOWEsaid, he objected to the right hon. Gentleman's proposition because 1523 it was directly opposed to the leading principle of the Bill, and did not leave debtors and creditors to themselves. He could not see the policy of creating a kind of floating capital which had never been subscribed by shareholders, which was never intended to be paid by them, and upon which the directors were not to trade. By the proposed Amendment persons joining a Company would have a liability imposed on them which they had never intended to incur, and the directors, after exhausting the fund upon which they could properly trade, would be enabled to fall back upon another fund upon which they might draw without the will or the knowledge of the shareholders. One great benefit of the Bill would be the destruction of funds at the disposal of the directors. The less credit those Companies had the better. People had no excuse for dealing largely with them upon credit. For those reasons he thought the proposition of the right hon. Gentleman very objectionable.
§ MR. ARCHIBALD HASTIEsaid, the hon. Gentleman's observations proved that he knew nothing about credit; but he agreed with the hon. Gentleman that credit ought not to be given to the Companies which this Bill would call into existence.
§ MR. BOUVERIEsaid, he strongly objected to the Amendment, as he thought it would give undue credit to Companies by enabling creditors to look beyond the capital of shareholders. One of its effects would be to prevent trustees from ever holding shares.
§ MR. MALINSsaid, he thought the Amendment was contrary to the principle of the Bill and was fraught with mischief. After the passing of the Bill every one would have fair notice, that in dealing with a Company he had nothing to look to but the assets of the Company, and if a creditor did not get paid it would be his own fault. The limitation of the credit of Companies would be very beneficial.
§ MR. MITCHELLsaid, the Bill as it stood enabled directors to call upon shareholders for a larger amount than was necessary to carry out their undertaking, if the stock of the Company were fixed at that large amount.
§ MR. CAIRNSsaid, no answer had been given to the case put by the right hon. Gentleman who moved the Amendment with regard to the opportunity for fraud which the clause would afford.
§ VISCOUNT PALMERSTONsaid, he strongly objected to his right hon. Friend's 1524 proposal, on the ground that it would tend materially to prevent the Bill from having any practical effect, and would likewise deter persons with small capital from investing their money in such Companies. The effect of rendering a shareholder liable for double the amount he had invested in a Company would be to oblige him, if he were a prudent man, to keep in reserve and unemployed an amount equal to the capital represented by his shares. No man in business or in trade who wished to employ his capital to the best advantage would wish to do that, and, therefore, the only effect of the proposal would be to nullify the operation of the Bill. The Amendment proceeded on an assumption which he did not admit—namely, that all those Companies would consist of cheats and swindlers, and that all their creditors would be fools, incapable of taking care of themselves. He utterly denied that there was any foundation for that assumption—he was persuaded that those Companies would in general consist of honest, prudent men, who would look well after their own concerns, and it was the duty of those who had dealings with them also to look after their concerns, and not to give them credit to a greater amount than was justified by the state of their affairs.
§ MR. CARDWELLsaid, he must deny that his Amendment was founded on the supposition that all Companies would be fraudulent and all their creditors fools. He had pointed out the possibility of the commission of fraud under the provision.
§ Question put, "That the words 'after such Certificate is granted,' stand part of the Clause."
§ The Committee divided:—Ayes 78; Noes 15; Majority 63.
§ The House resumed; Committee report progress.