§ MR. LOWE, before moving that the Speaker should leave the chair, should request his opinion on a matter of order. On the previous day, notice was given by his right hon. Friend the Member for Wells (Mr. Hayter), that he (Mr. Lowe) should that day introduce two Bills—one to amend the law of partnership, and the other for the incorporation and regulation of joint-stock companies and other associations. By some accident, a portion of the notice had fallen out, so that the Bill for the amendment of the law of partnership was omitted from the notice, although the words "Law of Partnership" appeared as the title. He wished to know whether, under such circumstances, it would be competent for him to introduce both Bills?
§ MR. SPEAKERsaid, that, as the error was not on the part of the right hon. Gentleman (Mr. Lowe), he would be entitled to proceed with both Bills. It was important 111 that notices should always be given in writing; and in the present instance that had been done.
§ House in Committee; Acts read; considered in Committee.
§ MR. LOWESir, it will be in the recollection of the Committee that in the course of last Session a Bill was passed through Parliament for the purpose of enabling joint-stock companies to enjoy the advantages of limited liability. At the time when that measure was under consideration, it was stated that it was founded on the laws already in existence for the regulation of Joint-stock companies, and it was also intimated that it was the intention of Her Majesty's Government to ask next Session for leave to bring in a Bill to alter and amend the enactments in question. The measure of last Session was incorporated therefore in a temporary law, and on that account, if on no other, temporary in its nature. Since that time the whole question has undergone a thorough review by the Government, and I shall now proceed to state the results at which they have arrived. The questions we have now to consider are these:—first, how shall the principle of limited liability be extended to private partnerships?—secondly, in what respect may the laws to which Joint-stock companies are at present amenable be amended and improved? These are two great branches of the same subject, and, that they may be dealt with in a satisfactory manner, it will he necessary to introduce two Bills—the one relating to private partnerships, the other to Joint-stock companies.
I shall endeavour briefly to explain the state of the case with regard to these two measures. And first with regard to private partnerships. The law of private partnerships in England has been very little interfered with by the Legislature; it has heretofore been left very much as it stood at common law. The great grievance complained of is, not the want of limited liability, strictly so called—not the want of a power in a partner, known to the creditors, to contract with those creditors that he shall not be liable to them beyond a certain amount; that is not the ground of grievance as regards private partnerships, but rather the converse of the proposition—namely, that a dormant partner—a partner not visible to the creditors and never known to them—who may have embarked a certain amount of capital in a concern, should, on the failure of the business, 112 be made liable not merely in the proportion of the capital he had so embarked in it, but to the extent of all the property he possesses in the world, though the existence of that property was unknown to the creditor, and though it is, in consequence, property on the credit of which not one farthing could have been advanced. This is the nature of this practical grievance, and it now becomes the duty of the Legislature to consider how it will deal with it. There is another question arising out of the present state of the law as affecting private partnerships which has also to be considered. The Committee is aware that by an Act recently passed, the usury laws have been repealed; and though at the time of their repeal it was not foreseen how that measure could affect private partnerships, it is, nevertheless, very certain that it has altered very materially the position of persons making advances to partners by way of loans advanced on terms of receiving, instead of interest, a share of the profits. Mr. Baron Bramwell, a good authority as a political economist, but whose authority as a lawyer—I may say it without disparagement to him—is still higher, gave, in his evidence before the Mercantile Law Commissioners, an opinion which is well deserving of our attentive consideration. That opinion is to the effect that, as the law at present stands, it is perfectly competent for any person to lend money to a private partnership, reserving as a guarantee for repayment the right of demanding interest at the rate of, it might be, 50 per cent, to be considered as a penalty; the agreement being that the right to such interest should not be enforced in case the creditor should be paid a rateable share of the profits of the concern for his loan. This opinion of Mr. Baron Bramwell coincides with one delivered by Lord Eldon, ex parte Hamper; both those distinguished Judges concurring in the view that, as the law at present stands, it is possible for a creditor to lend money to a private partnership, and to receive a share of the profits by way of interest on the loan. It is not the intention of Her Majesty's Government to narrow or diminish the powers and abilities which persons already enjoy to enter into these contracts. We take the question as it stands, and desire rather to enlarge and enable than to contract and to restrict.
It being the present state of the law of private partnerships that property and 113 capital not embarked in the concern, and upon which credit was never given, is liable for the debts of the partnership, it remains to be seen what is the proper manner in which to deal with this question of private partnerships. One method would be to carry the present law of limited liability into these partnerships, and to say that any number of persons, however small—even to one, and there could not be a much smaller number than that—that he or they shall be entitled to be formed into a corporation, and to enjoy, as such, the privilege of limited liability. To that proposition I am not disposed to accede; and for this reason—that it appears to me that there is something incompatible and inconsistent between the character of a man acting as a principal in trade, and that of a person being corporator, and whose liability as such shall be limited. There would be a constant ambiguity whether such a person was trading as a principal or as a private individual. There is nothing inconsistent with the character of limited liability in the position of an agent such as a director or manager, but the position of a principal carrying on such business would be ambiguous and uncertain; many of his acts would bear a double construction, and there would always be a struggle on the part of creditors to fix him with individual liability, and on his own part to refer his acts to his corporate capacity. Individual partners would have to guarantee their own partnerships. These difficulties would increase as the partnerships grew smaller, till in the case of little tradesmen they would become absolutely intolerable. Everything would always be said to have been done by the corporation and nothing by the individual, and a door to vexation, quibbling, and perjury would be opened which it is most desirable to keep closed. Seeing that there is no particular demand for such an extension of the law, and bearing in mind that, even though it were adopted, it would be so merely for the sake of a barren consistency and an idle uniformity, I do not think that it would be in any degree desirable to decide the question by such a method as this. Neither should I advise the House to adopt the law of commandite as it is at present practised in Prance. It is not suited to the habits nor to the methods of the people of this country; and its introduction would be tantamount to the enactment of a new law of partnership. I think that if we can remodel the old law 114 in such a manner as to adapt it to our wants and usages, and to infuse into it the liberal principles of our modern commercial system, we shall by so doing adopt a far more judicious course than if we were to sweep away the old fabric and erect a new one in its place. Neither should I be satisfied to deal with partnerships merely by way of legalising loans or making them the subject of special legislation. In my opinion it is not any business of the State to favour by special legislation one particular method of dealing in preference to another. It is rather the duty of the State to act with strict impartiality as regards them all, and to leave to every man in the community the option of deciding for himself what is the best system on which to conduct his affairs. But I cannot but think that if we were to facilitate loans to partnerships, without at the same time giving to dormant partners the power of limiting their liability, we should be giving an undue preponderance to the loan system over any other, and should be stimulating perhaps the worst way of dealing by encouraging men to carry on their business rather by means of temporary advances than by embarking capital permanently in the concern; and that thus we should be throwing the weight of legislation into the wrong scale. Into the question of whether it be or be not an improvident practice to carry on business by means of loans I do not now propose to enter; but I cannot think that it would be at all advisable to facilitate the contract of loans unless you at the same time provide that the advance of money or capital on contract to share profit or loss shall not be held to make the lender liable as a partner. But, on the other side, it is not the duty of the Legislature to prohibit persons, if they choose to do so, from carrying on their business by loans. I hold that it is not the business of the State to save men from the effects of their own improvidence; but neither is it desirable to provide facilities for the contraction of loans. The whole evil complained of in the present state of the law, as regards private partnership, resolves itself into this, that a dormant partner, unknown to the creditor at the time of the contracting of the debt, is made responsible to his last shilling or acre for a debt for which he was not known at the time to be a party, and that property of his, on the strength of which not one farthing had been advanced, is confiscated to satisfy the claim of a person who when 115 the transaction occurred knew nothing of his or its existence. In reprobating this state of things, I only echo the opinion of some of the most distinguished jurists, and among others of that eminent Judge, Mr. Justice Story, a man by no means prone to rash innovation, who concurs with other great legal authorities in deploring the doctrine laid down in the case of "Waugh v. Carver," and in thinking that it would have been better if it had been decided the other way. The Bill which I now solicit the permission of the House to lay upon the table will overrule the judgment pronounced in that well-known case, and proposes to provide that "the advance of capital or money to be used in any trade or undertaking, not being the trade of a banker, upon a contract with the person carrying on such trade or undertaking, that the person making such advance shall receive a share of the profits, or shall bear a share of the loss of the trade or undertaking, shall not of itself render the person making such advance liable to third parties as a partner in such trade or undertaking." The law will then stand thus—that a man who has embarked a certain sum of money in a concern may become a dormant partner for certain purposes without involving himself in the general liabilities of partnership. In fact, with all that is most beneficial in the French commandite partnership you will also have, without making any great innovation on your old law, the advantages of a loan system, conducted not in a circuitous or evasive but in a direct and intelligible manner; and it will be practicable for any partnership to raise money by way of loan without making the lender or the dormant partner liable beyond the amount of the money he may have advanced. We take things as we find them, and, while we propose to regulate the liabilities of lenders and borrowers, we are not to be understood as pronouncing any opinion as to the wisdom or propriety of either lending or borrowing, on any particular terms. There may be instances where it would be highly improvident to conduct an establishment by means of loans, and on the other hand it is quite possible that there may be cases where a permanent increase of capital would be more injurious to a business than a temporary advance. These are questions with which we have no concern. It is for us to allow men to conduct their affairs on such principles as they shall themselves approve. It is for us to observe an 116 impartial demeanour, leaving to every trader the option of determining on what system he may think fit to manage his affairs.
The Bill also contains a clause providing that the remuneration of servants or agents by a share of the profits shall not be held to make them partners. Bankers are omitted out of deference to the course of previous legislation, which has constituted them an exception to the general rule applicable to other occupations. This omission is also made because we do not wish to encumber a question of this kind, which is merely one of limited liability, with questions relating to the banking trade, currency, and other kindred matters: although, for my own part, I see no reason why bankers should not be treated in the same manner as any other class of partners.
Having now disposed of all that I think it necessary to say regarding the smaller Bill, I next approach the subject of the larger measure; and here I must beg that the Committee will bear with me, because, although I shall endeavour to condense my observations as much as possible, yet the question is so very complex in its nature that I cannot hope to render myself intelligible to them without trespassing on their attention for some little time. Now, the state of the law relating to Joint-stock companies is somewhat peculiar. It seems to have been the misfortune of these bodies to be always legislated for by persons in a state of excitement. The first Act relating to them, called "the Bubble Act," was passed during the first paroxysm produced by the bursting of the memorable South Sea bubble, in the reign of George I. Banquo says—
The earth hath bubbles as the water has,And these are of them!And so our legislators set to work to explode them; and for 100 years the law of this country rendered the formation of Joint-stock companies illegal, and an indictable offence. This I mention not because it is immediately relevant, but that it may act as a caution to us against being led away blindly by precedent. Here is a remarkable instance of a thing being proscribed which is now generally recognised as having proved very beneficial to most communities—namely, the right of association among capitalists. This prohibition remained in force till the year 1825, when it was repealed. The Government at that date still continued 117 to look very jealously on these companies; and, although it was then seen that they partook very largely of the nature of corporations, yet it was only by very slow degrees that it could he induced to regard them in that light; for in the first year of the reign of Her present Majesty it was enacted, not that Joint-stock companies should be allowed to sue under a corporate name (that was thought to be too high a privilege for bodies which had so lately lain under the ban of the Legislature), but that they should be allowed to sue and to be sued in the name of their public officer—a most inconvenient and circuitous form of proceeding, and one which showed the absurd and ridiculous distrust with which these associations were regarded. Then we come to the law of 1844—the present Joint-Stock Companies Act. That measure was the result of the Report of a Select Committee, which appears to have conducted its deliberations in a state of mental perturbation scarcely less violent than that which prevailed in the days of George I. For, when I look at their Report, I find the headings of the different sections of what one would generally expect to be a very demure and quiet sort of document running thus:—"Form and Destination of the Plunder," "Circumstances of the Victims," "Impunity of the Offenders," and the like; so that a hurried glance at the contents might make a man fancy he was reading a novel instead of a blue-book. This Committee, however, notwithstanding their excitement, evidently examined the matter with great care, and arrived at a conclusion to which I invite the attention of the House, because it illustrates the animus and the principles on which the Act that I am about to discuss was founded. The decision of the Committee—although I do not blame them for coming to it at the time when they considered this intricate subject—is nevertheless hardly one which this House will now be disposed to sanction or support. They divided these companies into three distinct classes—the first being those which, faulty in their nature, were based on unsound calculations, and could not possibly succeed; the second, those which, let their objects be good or bad, were so ill constituted as to render it probable that miscarriages or failures incidental to mismanagement would attend them; and the third, those which were fraudulent in their constitution and never intended to work at all, being started only 118 to create shares for jobbing purposes, or to secure, under the pretence of carrying on legitimate business, an opportunity of raising funds to be divided among the adventurers who projected them. The Committee state that, for the third class of companies, the remedy is easy; that the compulsory publication of the names of the shareholders and directors would suffice to baffle every case of fraud that had come under their notice; that, in fact, the only class that "did not admit of certain cure," were those which were faulty in their nature and based on miscalculations, such as two and two make five. This Act appears, therefore, to have been introduced in the belief that it was in the power of the Legislature, by its enactments, to correct every evil relating to these bodies except those growing out of flagrant miscalculation. It was then confidently asserted that a certain cure could be effected in these matters; but I wish to show the House how ill the performance has kept pace with the expectation held out, and how signally the machinery, which was supposed so very efficient, has broken down in the hands of those intrusted with its working. The Joint-Stock Companies Act, 7 & 8 Vict., chap. 110, was passed. It provides that there shall be a provisional registration—that is, that the promoters of a company shall register their names, their objects, and other matters of that kind, before they are allowed to allot the shares, or to do other acts that are specified; and between the periods of provisional and complete registration they are not permitted to deal in shares or in scrip, and they are likewise then forbidden to do anything except provisionally. Next, they are required to execute a deed containing eleven requisites which are enumerated in the body of the Act, and thirty-eight more that are comprised in the schedule which the Registrar is to see inserted in the Act. This is to be signed by at least one-fourth of the shareholders, holding one-fourth of the stock; after due compliance with which formality the company is entitled to complete registration. The rest of the Act is taken up with clauses, either dealing in minute detail with the internal government of the company, or specifying a vast number of returns to be made by it upon different matters connected with its affairs, and a provision for the shareholders, which has turned out totally inadequate. Such is a general outline of that measure, as far as it is necessary for me now to describe it. Upon 119 this was ingrafted, in the last Session of Parliament, the Limited Liability Act, which provides that, in addition to all that is requisite in order to enable a company to obtain a certificate of complete registration with limited liability under the Joint-Stock Companies Act of 1844, a deed shall be executed by twenty-five partners, holding three-fourths of the company's capital, and paying up 20 per cent each, upon which a certificate of complete registration with limited liability shall be granted to such company. That, then, is the state of the law at present; and of course, before I ask the Committee to agree to alter it, I am bound to show them that it labours under various and serious defects. Unfortunately, I shall have no difficulty in executing that task.And, first, as to provisional registration. It was no doubt intended by provisional registration that the law should watch over an infant company, as (if I may so express myself) it would watch over a child, so as to guard against its committing itself by doing any act that would irretrievably and permanently damage its interests before it has arrived at years of discretion—in a manner, in fact, analogous to that in which an infant in law was protected until it had attained the toga virllis—like infants, they were allowed to contract only for necessaries. Now, however reasonable this view may be in theory, it has proved to be one far too refined for actual practice; for the result has been that some companies have treated provisional registration as the only registration that is necessary, and have gone on ever since without complete registration in open defiance of the law; while others have treated this registration (to use the language in vogue among diplomatists) as non avenu, and have subsequently come out with totally different aims and objects from those which they originally contemplated. The Act has, therefore, been practically set aside, and has no effect whatever even in prohibiting the sale of scrip, because, unfortunately, the prohibition was addressed to the Stock Exchange (which I will not call a lawless body, for it is actuated by the highest of all laws—the law of honour); hut like all bodies acting under that law, it is independent of Parliament, and therefore, although the statute says that the Stock Exchange shall not negotiate the scrip of provisionally-registered companies, yet the Stock Exchange in this case is an imperium in imperio, 120 and such shares are as freely bought and sold there as though the companies were completely registered. The object which the framers of the Act had in view was no doubt a good one, being intended to put a restriction upon half-formed and immature companies, which are not ripe for uncontrolled action. A better principle, however, would have been to accelerate the attainment of their majority by the companies, and to declare in fact that none of them should be permitted to come into existence before the public until they were able to undertake all the liabilities and duties of a company. Thus quasi companies would not have been allowed, as at present, to be started, until all the preliminary negotiations incidental to their getting up had been fully perfected. I should not expose them, in relation to the execution of a deed with eleven requisitions of one class to be complied with, and thirty-eight more of another, to all the trouble and expense to which they are now subject; and this, too, in regard to matters which the companies are quite competent to manage for themselves, and which are exclusively personal to them, the public having no possible interest in them. There is also another provision as to the subscription of one quarter of the shareholders holding one quarter of the stock of the company, which is deserving of attention. It was clearly established in evidence before the Committee moved for two years ago by my hon. Friend the Member for Westbury (Mr. J. Wilson) that, in the case of very exorbitant individuals for the sum of one shilling, and in others for the more moderate consideration of a pint of beer, as many so-called shareholders could he got to sign the subscription list of a company as the projector pleased. As this matter is one of great importance, seeing that the whole foundation of the law I am about to propose to the Committee turns upon it, I will take the liberty of reading a few brief extracts from the Report of the Committee. I find that the Registrar of Joint-Stock Companies, Mr. Whitmarsh, who was examined before that tribunal, states very compendiously that the returns which the Act requires, and which are enormously burdensome and expensive, are worth nothing—that the Act is very much evaded, companies being frequently formed with no other foundation than that supplied by men of straw. Such is the testimony of the Registrar himself; and I beg 121 the House to compare this testimony with the prognostications of certain cure made in the Report of the Select Committee to which I have previously referred, because I cite this in support of the inference which I wish to deduce—viz. that it is quite impossible by any legislation that we can devise really to protect the public in matters in which they are fully able to protect themselves. I will first refer to a very remarkable prediction made by Mr. Bellenden Ker in 1837. That gentleman is a high authority on the subject, having been engaged in settling the deeds of Joint-stock companies for many years past, and he says:—
In the consideration of this part of the subject other points of importance occur; first, whether, previously to the formation of such partnerships"—Joint-stock companies—"It should be made requisite that a certain part of the capital should be paid up, or that there should be any regulations concerning periodical returns of the state of the affairs of the company, or for the appointment of auditors of the accounts by the shareholders at large. It is probable, however, that the best course would be to leave these matters to the agreements and provisions of the parties interested, more especially as any measure requiring that the capital, or a part of it, should be paid up would be liable to evasion, and, moreover, would be of difficult application in many cases. It is also to be observed, the provisions proposed do not confer any privilege or immunity on these companies, but merely bring them within the effectual reach of the law, and only accomplish, as regards all partnerships, what is now the law regarding banking partnerships, and what is frequently permitted to companies by private acts, charters, or letters patent.It appears that this gentleman, a man of great experience, seven years before this Act was passed foresaw, and clearly predicted, that all the provisions intended to protect the public would end in affording no protection at all—that they would be nugatory; if not absolutely mischievous. I will next read an extract from the Report of the Committee appointed on the Motion of the hon. Member for Westbury to inquire into the state of Insurance Societies. They say in their Report referring to this subject:—With regard to provisional registration, it appears that the law as it now stands does not afford the security which was contemplated by the Act of 1844, inasmuch as the representations made by the prospectuses and advertisements issued by new companies often vary very materially from the objects for which they have been provisionally registered; and there appears to be no means at present to prevent deception and misrepresentation being practised on the public in this way. Nor are the regulations required in order to obtain complete registration more perfect 122 for that purpose. It is required by the law that the deed of settlement should be signed by shareholders equal to one-fourth in number, and representing one-fourth of the proposed capital of such companies; but it appears from the evidence of Mr. Whitmarsh that this provision has been extensively abused by means of false and fraudulent signatures, and has thus proved to be a very insufficient security for the objects contemplated. It appears also that it has been frequently evaded"—there are other means of evasion, and their name is Legion—"by companies commencing business with a very small capital, and, immediately upon obtaining complete registration, greatly increasing its amount, which they are enabled to do without further recourse to the office of the Registrar.It appears, then, that these provisions can be evaded, and some of the witnesses examined before my hon. Friend's Committee stated, with great courage, that we should not suffer them to be evaded any longer, and that the whole fault was in the insufficiency of the law. It is always the case, with regard to restrictive laws, that where a restrictive law is once enacted there is a craving for further restriction. The restrictions you impose in the first instance are admitted to be of some value, but you are told they do not go far enough, and that if they are meant to do any good they must be carried still further and further. It is said that these projects are frequently originated by men of straw. "Oh, then," says one of the witnesses, "arm the Registrar with inquisitorial power, and let him inquire into the circumstances and responsibility of every promoter." That is one suggestion. But it is also true that companies may begin with a small capital under these restrictions, and that when they have gone on for a little while with a small capital they can double or treble that capital without any restriction. Now, can you prevent that? Are you able to say that companies shall not increase their capital? Will you empower the Registrar, or any other person, to judge what capital these trading companies shall raise? You begin by encroaching upon natural liberty, and, in order to make that encroachment effectual, you find that you must proceed to an utter deprivation of liberty, until, to carry out your principle logically, you will have to take the whole management of these companies out of the hands of the people to whom it belongs, and vest it in the Board of Trade, or in some branch of the Government. I leave the Committee to imagine what would be the result of such a course. The evidence taken before the 123 Committee on Assurance Societies shows that the result of the Parliamentary provision for the regulation of these companies has been to afford facilities for frauds which could not otherwise have been accomplished. With regard to the operation of the present law, the Committee say:—That the Acts which have already been passed with a view of controlling the operations of insurance societies have been rather hurtful than beneficial for the very objects they had in view;"—and what is said of insurance societies is quite as true of others—"that an apparent compliance with the provisions of an Act of Parliament, and a certificate of complete registration, while they have proved entirely ineffectual for their professed objects, and no real security to the public, have afforded facilities, under the sanction of Parliamentary authority, embodied in regulations administered by a public department, for the formation of companies and the perpetration of frauds which could not otherwise have been accomplished.So it appears that those provisions which, it was believed, would have worked a certain cure have been the very means by which fraud has been perpetrated.And it has been further contended that it is impossible to make such regulations consistent with the free development of private enterprise, which, so far as the public is concerned, will not prove more prejudicial by lulling private prudence and vigilance, than beneficial in respect to any increased security which they can confer.It seems, then, upon the opinion of very competent witnesses, that these Acts, so far from having been a means of preventing fraud, have only afforded facilities for its commission, because fraudulent persons have availed themselves of the sort of prestige which is gained among ignorant people by a presumed association with the Government, and have announced companies as "established by Act of Parliament," or as "provisionally registered," and have thus given them a colour of respectability which their own merits would not obtain. It therefore appears to me that when the Government attempt, by a system of artificial restraints, to test the worth of any commercial undertaking, they endeavour to do what they are not able to accomplish. Indeed, they really have not the means of effecting such an object. The formal restraints which they devise will be complied with by the honest trader, who requires no coercion, and will be evaded by the fraudulent, who laughs at such restraints. But not only do these provisions prove nugatory—they serve as traps to the unwary. They give credit to 124 unsound and unsubstantial concerns, and in a great degree facilitate those very frauds which they were intended to prevent.Having now described the Acts which we propose to repeal—for the proposition of the Government is to repeal the Joint-Stock Companies Act and the Limited Liability Act of last Session—it may save time if, before I state the details of the measure which I shall ask leave to introduce, I explain as briefly as I can the principles upon which we believe that future legislation should be based. We entirely repudiate as the basis of legislation the principle upon which the present Joint-Stock Companies Act is founded—that it is in the power of the Government to prevent the institution of fraudulent companies. We do not believe that it is in the power of the Government to supersede the vigilance of individuals, who are actuated by the strongest personal interests to detect these frauds; and, although I do not mean to say that many frauds will not still continue to occur, I believe that is a necessary incident of a large commercial society, and that it is an evil which cannot be met or cured by way of anticipation by any legal enactment whatever. I do not think it is a fair or right principle to embarrass, perhaps, a hundred honest, sound, bonâ fide concerns, in the vain and futile effort to correct the hundred-and-first, which may be of a contrary character. I think that, in such a case, with the view of doing a little good, you would do enormous harm, and you would set up a principle inimical to the well-being of civilised society: for, unless we deal with each other upon some presumption of confidence—unless we assume that a man is honest until he is proved to be a rogue—the disruption of human society must necessarily follow. Fraud and wickedness are not to be presumed in individuals. Why, then, when individuals are united together in society, should fraud and wickedness be presumed in those societies, which, after all, are but an aggregate of individuals, but individuals in the case of each of whom there is the presumption of innocence? We must base these laws upon the principle by which human transactions are guided, and the rule upon which men in business everywhere act is that persons are to be treated with confidence until something is proved against their character. The commercial intercourse of countries and of this great city and empire could not go on if a contrary rule were 125 adopted. I may further observe that these restraints upon the creation or institution of commercial concerns tend very much to delay, and in such matters delay is fraught with danger. While a company is inchoate—before it is formed—the rights of parties are ill defined, and rest upon no strong or assured basis. That is, no doubt, the evil which was intended to be remedied by provisional registration, but I take it that such an evil is not to be cured by law. Rights in incipient companies are undefined, because men do not know what their rights are, and therefore cannot define them; and they, as in the case of provisional committee-men, often incur responsibilities unknowingly and are plunged into difficulties and embarrassments which they would have avoided had they been able to form their companies at once, and to proceed immediately to action. The condition of monetary affairs in which a company has been formed, perhaps, passes away, and it has to be organised in circumstances under which probably no one would have thought of establishing it; or those by whom the company has been projected are in a difficulty whether to abandon the undertaking and to return the money, or to attempt to carry it on. Every man of business must know that any delay in the formation of a company is frequently attended with such results. It is not for any fancied security, for any supposed advantage, that we ought to lay restrictions on the freedom of mankind in matters like these; and so far as we have yet gone, it would be impossible to show anything that comes near to a necessity for the imposition of such restrictions. The only ground on which you can defend such restriction is that it prevents fraud, which you have no right to assume; or that it secures stability, which it is impossible by any Government regulations whatever to secure. I shall now proceed to consider the nature of the restrictions imposed upon companies, and to show how little validity they have either in fact or in argument; and, in the first place, with respect to the paying up of a certain amount of capital. I admit that in the case of railway companies the principle of enforcing the paying up of a certain amount of capital is a good one, because it affords a protection to the public—it is in the nature of a deposit on the purchase of an estate; and the capital is ready for the purchase of property if required, and, if not, it is there to be returned to the depositors if the concern is 126 not carried out; and it is only reasonable that men who come to Parliament, asking powers to take the property of their neighbours, should give evidence of their sincerity by paying up a portion of the amount required. But the case is quite different with regard to other concerns. Taking the Limited Liability Act as it now stands, it is required that 20 per cent of the amount subscribed shall be paid up, and that the fact of such payment having been made shall be proved by a declaration made by two of the promoters. Now, in the case of bonâ fide companies I can imagine nothing more embarrassing than this. It involves such companies in a great deal of difficulty; and I have had strong complaints from various quarters of the trouble and embarrassment which have been experienced in forming bonâ fide companies from this cause alone. This provision was not meant to hit the honest, but the fraudulent; but it is evident that fraudulent companies can easily evade it, for they have nothing more to do than to get two of their promoters to make a declaration to the effect that the amount of capital required by the Statute has been subscribed—it is, as Hamlet says, "as easy as lying,"—it is only required that the declaration shall be made, no power being given to inquire whether it really has been subscribed or not. So that while you are annoying and embarrassing bonâ fide concerns, you are not in the least degree placing a check upon those that are fraudulent. On the contrary, if they succeed in satisfying the Government requisitions, they obtain a spurious merit to which they are by no means entitled. By this enactment also you are taking the business of people out of their own hands. It is often a disadvantage to a concern to start with a great amount of paid-up capital. Sometimes, for example, the money may be wanted for the purchase of mines, but a long time may elapse before such a purchase can be concluded. What worse thing can you do for a company in such a case than to require that it should pay up a large portion of its capital? It is highly injurious in two ways. In the first place, it suggests to the directors a temptation to steal. They have got the money and do not know what to do with it, and in such cases it is apt to stick to people's fingers. In the second place, it very often perpetuates the existence of unsound and unwise concerns after the fallacies on which they may have been based have been found out; whereas, if it 127 had had a small capital it would have been wound up at once: those who have the money and are, perhaps, making a good thing of it, think it would be sparing the Egyptians to return it, and thus they go on employing the capital of the shareholders, till it is entirely consumed. I shall say no more on the subject of capital being required to be paid up, as I think I have said sufficient to show that it gives no safety or security to the companies on whom it is imposed. But there is another point on which I have the misfortune to differ from some Gentlemen in this House, for whose opinions I entertain the greatest respect, to which I shall for a moment advert. There are many who would not require companies to pay up a certain amount of capital who yet think it necessary that this House should fix the amount of shares. Now the old Joint-Stock Companies Act, with all its faults, did not fix the amount of shares. Such an interference is wholly unnecessary, and would be productive of evil. I do not think it any part of the business of the Legislature to define whether shares shall be large or small. What presses strongly on my mind, and is with me one of the most powerful arguments against it, is that these small shares are much desired by the poor, and that there are many things in which they take an interest, and with regard to which it would be desirable to obtain their co-operation. There are various enterprises that they would often be inclined to connect themselves with; but if you fix a large amount for shares, this natural wish it would be impossible to realise. I have in my possession letters from persons of that class who are desirous to establish, for example, a cotton-mill by means of a company with £1 shares. I do not say whether such a scheme as that will succeed or not. I am afraid these co-operative undertakings have not been, generally speaking, prosperous. But, whether that be so or not, can we imagine a more impolitic law than that which permits associations to be formed by the rich, but denies them to the poor? While we allow those who are possessed of capital to establish companies for their mutual benefit, when contests take place between capital and wages, shall we forbid the workmen to enter upon the formation of companies for themselves, because we think it right to fix as the amount of shares a sum larger than they can possibly raise? Let them try the experiment, or they never will be satisfied; 128 and be assured that there can be no more unjustifiable law than that which gives facilities to the rich and excludes the poor from combining in any matter of trade, or for any legitimate object that they may demand. Take as another example the truck system. We have had many Committees of the House on the truck system. What can be a more natural remedy for people who find that at the only shop to which they have access they are cheated, that they should join together their small earnings, in order to save themselves from the overcharge and the adulteration and all the oppressions to which they are subjected by setting up an opposition establishment? I shall deeply regret if it is not the policy of this House to support the measure which we are prepared to lay before it on this matter—a measure which I believe to be cast in a spirit of comprehensive liberality; or if any difficulty should be felt as to giving facilities to poor persons in the conduct of affairs of which they themselves may be expected to be the best judges. The only argument which I have heard against those small share companies is, that they will lead to gambling in shares. It is not impossible that this may to some extent be so; but if we were to refrain from legislation on all matters that might possibly lead to gambling, the consequences would be more comprehensive than at first sight might be imagined. On this principle we should begin by burning haystacks lest people should draw straws out of them, and bet upon their lengths. If we are to take away one man's rights or property for fear another should make a bad use of them, we should not, indeed, check the bad, but despoil and plunder the good, and give an unnatural extension to the principle inseparable from human society, which already imposes on the good some part of the penalty incurred by the misconduct of the bad.
I come now to another subject, the liberty of incorporation. It is usual to say that, as these companies come to the Legislature for favours and for privileges, we have a right to impose upon them what terms we choose—that we can make them submit to whatever restrictive law we like. Now, I protest against the use of the word "privilege" in such a case as this. In matters of commerce and exchange, of buying and selling, and of contract, it is impossible that under a just Government there can be any privileges. All associations ought to be equal before the law, and 129 there can be no greater injustice than for a Government to ask for any undue exactions from any association on the one hand, or to give to any of them advantages above their fellows on the other. But there is no privilege. A partnership with many members ought to be considered in the light of an individual, and it is for the advantage of the public that the incorporation takes place. It is a sort of legal monster that cannot, without the aid of law, comply with the requisitions of the courts of justice, and it is therefore not only for its own convenience, but for that of the public, that it should be incorporated, so that it may both sue and be sued in one single name. It is a matter of procedure more than anything else—it should be encouraged wherever the mischief is likely to arise—that is, wherever such an association is likely to be party to any legal proceedings. It should be held as one single person; and for that reason we should throw no obstacle in the way of incorporation, as it is for the interest of the public as much as for that of the company itself that it should take place. It is no privilege, but a right to be conceded, a state of mischief to be corrected; and it is necessary, because such a company is so numerous that it would be difficult otherwise to proceed against it. I have already observed, that previous to the incorporation of a company, it was neither wise nor right to require any of those restraints and safeguards which had been demanded on behalf of the public. I now propose to show, that the fact of a company being established on the principle of limited liability, does not strengthen the case in favour of those restraints and safeguards. What I said of incorporations may be applied to companies with a limited liability. It is not a question of privilege; if anything, it is a right, and upon that ground we gave our assent to the Act of last Session. The principle is the freedom of contract, and the right of unlimited association—the right of people to make what contracts they please on behalf of themselves, whether those contracts may appear to the Legislature beneficial or not, as long as they do not commit fraud, or otherwise act contrary to the general policy of the law. It is easy to make anything a privilege. Any right, the exercise of which is denied, becomes a privilege, the very term privilege arising from the negation of a natural right. The process is this—it begins with prohibition, then becomes a 130 privilege, and last of all a right. Till 1825, the law prohibited the formation of Joint-stock companies. From that time to the present it has been a privilege; but now we propose to recognise it as a right. So with limited liability; at first it was prohibited. Then came the Statute of the 1st Victoria, which gave the Board of Trade power to relax the law in certain cases; and, lastly, the Act of last Session, extended the privileges, but still imposes restrictions. Having thus gone through the first and second stages—prohibition and privilege—we propose now to take our stand upon the only firm foundation on which the law can be placed—the right of individuals to use their own property, and make such contracts as they please, to associate in whatever form they think best, and to deal with their neighbours upon such terms as may be satisfactory to both parties. The restrictions hitherto placed upon trading companies were intended to effect one of two objects—either to secure the stability of the company, or to prevent fraud. Is there anything in the nature of companies with limited liability that should make them less stable or more fraudulent than unlimited companies? I should say the contrary. Fraudulent people will never form a limited liability company. Their own liability, of course, is a mere bagatelle, unworthy of their notice. What they desire is a large credit; and to obtain that they endeavour to get as many persona as possible pledged to the utmost extent of their fortunes. It is plain that to such people an unlimited liability is a hundred times more advantageous than a limited liability. A company formed on the principle of limited liability carries on the face of it something like prudence and caution. Its shareholders seem to say, "we have entered into a partnership, but it is impossible to tell what may happen, and since the company may fail, we will not I risk nil we possess in the undertaking." Such is the nature and composition of a company which is supposed to offer such facilities for fraudulent practices, that it ought to be subject to restrictions which can be justified only on the ground that fraud is actually intended. Nor have we more reason to doubt the stability of a limited than that of an unlimited company. Nobody can tell à priori to which the preference in that respect may belong. The stability of a company depends upon two things—character and capital. But the character of a limited company may be 131 quite as good as that of an unlimited company, and its capital may be ns large. People confound unlimited with infinite, and think that the capital of an unlimited company must be large because it is all the shareholders have. There could not he a greater mistake. A limited company may have a capital of one or two millions; while an unlimited company may not be worth a thousand pounds. The capital of the latter is raised with difficulty; that of the former, owing to the terms of the subscription, will often ho larger, and the temptation to borrow money less. Hence it follows that the limited may often be more stable than the unlimited company. My object at present is not to urge the adoption of limited liability. I am arguing in favour of human liberty—that people may be permitted to deal how and with whom they choose, without the officious interference of the State; and my opinion will not he shaken even though very few limited companies be established. Every man has a right to choose for himself between the two principles, and it is ill-advised legislation which steps in between him and the exercise of that right. It is right the experiment should he tried, and, in my judgment, the principle we should adopt is this,—not to throw the slightest obstacle in the way of limited companies being formed—because the effect of that would be to arrest ninety-nine good schemes in order that the bad hundredth might be prevented; but to allow them all to come into existence, and when difficulties arise to arm the courts of justice with sufficient powers to check extravagance or roguery in the management of companies, and to save them from the wreck in which they may be involved. That is the only way in which the Legislature should interfere, with the single exception—a very essential one—of giving the greatest publicity to the affairs of such companies, that everyone may know on what grounds he is dealing.
I now come to explain the provisions of the Bill which I propose to introduce. The Acts we propose to repeal are the Joint-Stock Companies Act, the Act amending the same, and the Winding-tip Acts, the Limited Liability Act of last Session. The new Bill has a double principle—compulsory and permissive. The compulsory clauses provide that all partnerships consisting of more than twenty members, and established for purposes of gain or profit, shall be incorporated for the benefit of the public, and 132 in order that any legal proceedings in which they may be engaged may not be unnecessarily embarrassed by the number of partners. By the second part of the Bill—the permissive clauses—all partnerships or associations consisting of more than six, and less than twenty members, having gain and profit for their object, and all associations not having gain or profit for their object, but consisting of upwards of six members, may avail themselves of the benefits of this Act. These last associations may adopt it or not as they please. So that the effect of what I propose is, that associations having gain or profit for their object, and consisting of more than twenty members, must adopt the provisions of the Bill; that associations not consisting of more than six members, and having gain or profit for their object, may adopt them or not; and that all other associations, whether of an educational or religious character, or for whatever purpose they may be formed, if they consist of more than six members, may have the same option. There are two classes of companies omitted from the Bill. I say so with regret, but it has been done in adherence to the principle on which the measure has been framed—to confine ourselves to the amendment of the Joint-Stock Companies Act, and to the application of limited liability to large and small partnerships in the most efficient manner, without interfering in difficult questions, such as those connected with banks. Banking companies have an Act of their own, and therefore we do not propose to include them in the present Bill; though, individually, I should have wished to apply the same law to all companies, and I hope the day will soon arrive when it will be so. The second exception, which I also regret, relates to insurance companies, which have been omitted in deference to opinions that we are bound to respect. I do not think that the provisions of the Bill will ever be applicable to companies established on the principle of mutal assurance, which are not Joint-stock companies at all; but I am convinced they might be applied with advantage to other kinds of assurance companies. We have omitted them, however, in deference to the opinion of a Select Committee of this House, which sat on the subject in 1853, and which declared in its report that the business of assurance companies differed so much from that of ordinary companies that it was desirable to repeal all the provisions of the 133 Joint-Stock Companies Act, so far as they related to assurance societies, and to deal with them in a separate measure. Now, supposing a company to be in the course of formation under this Bill, I will now state how it is to obtain complete registration. We abolish the present system of registration, and every company affected by the Act is to sign a document which they call in America "a certificate of registration," but which we propose to call a "memorandum of association." That document is to be signed by at least seven shareholders; it is to contain the name of the proposed company; to state the object of the company; whether it is to be limited or unlimited as regards liability; the number of shares into which the capital is to be divided; and, if the company is limited, the word "limited" is to appear. That document is to be filed with the Registrar; and upon its being filed the company is to be entitled to registration, from which it follows that it is incorporated and possesses all the privileges of a corporation, with the right of suing and being sued. The next step relates to the deed of settlement. We have prepared and appended, in the schedule of the Act, the by-laws of a company, which we call the "articles of association." We have taken them from the ordinary rules adopted in Joint-stock companies, and have applied to them the principles of the Railway Consolidation Act. When those articles appear to the persons who have signed the articles of association to be applicable to the company, they may be adopted bodily without any expense; but if it should turn out that those rules are not applicable to a particular company, the company will have the power of filing a document with their memorandum of association, either specifying the whole code which they have agreed upon, or enumerating such of the rules as they do not adopt, and giving those which they substitute for them. There is no compulsion, therefore, in the matter. We leave companies to form their constitutions as they please; but if the constitution provided by the Act be suitable to the promoters, they will have the advantage of being able to adopt it without expense. Next, as to the register of shareholders. The present mode of attempting to keep a register by means of the Public Registrar has, as hon. Gentlemen are no doubt aware, entirely failed. We propose, 134 therefore, that the companies shall be compelled, themselves, under penalties, to keep a register of their own shareholders, which shall be accessible to the public at reasonable hours; and that that register shall be conclusive evidence as to who is a shareholder and who is not, together with the transfer of the shares to be signed by the transferee, much in the same manner as in railway companies. This will enable us to get rid of all those embarrassing questions as to what constitutes a contributor, which are frequently found to be so perplexing in winding-up cases. The clauses as to the management of the company I pass over, because the management we leave to the companies themselves. Having given them a pattern the State leaves them to manage their own affairs and has no desire to force on these little republics any particular constitution. One thing, indeed, will be required in reference to publicity, namely, that a balance sheet, which shall contain certain items, shall be filed every year with the Registrar of Companies; this, I think, may be fairly demanded from companies who will be saved so much trouble and expense; and, as we prescribe a form, we shall at least succeed in obtaining an uniform sheet, so that the shareholders will be able to compare the accounts of succeeding years, and to gather information from them, which, from the practice too extensively prevailing of rendering a differently-framed balance-sheet every year, they are now unable to collect. I now come to a new clause, which I hope may be found to be of great benefit to companies in distress. It shall be lawful for shareholders holding one-fifth part of the shares of any company to apply to the Board of Trade, at their own expense, to have the affairs of the company inspected; and the Board of Trade may, according to their discretion, appoint inspectors to investigate the affairs of the company, and to make a report, which report shall be the property of the persons who pay for it. This proceeding will not necessarily be attended with any publicity. It is borrowed in some degree from the New York code; out there is this difference, that in New York the application is made to a court of justice, and therefore involves, as a matter of course, publicity and expense; whereas we propose that the application should be to the discretion of the Board of Trade, and it will not necessarily entail either the 135 one or the other. This is a very important provision, and it will do more, I believe, to remove the real grievances under which shareholders labour than any restrictions that could be imposed upon the formation of companies. We propose to repeal the existing Winding-up Act, which has not worked very satisfactorily, and to replace that Act by a new one. The following are the terms upon which we propose by this Bill that a company may be wound up:—A company may be wound up by the Court whenever it is unable to pay its debts, or whenever such winding-up shall be for the benefit of the shareholders. It shall be taken to be "for the benefit of the shareholders" whenever three-fourths in number of the shareholders, holding half the capital, declare so in public meeting assembled; whenever the company does not commence or suspends its business for the space of a whole year; whenever the shareholders are reduced in number to less than seven; or whenever it is declared by the Court that it is for the interest of the shareholders, and not injurious to the public, that the company should be wound up; and a company shall he taken to be "unable to pay its debts" whenever it neglects for three weeks to pay a debt with respect to which a notice has been served, or whenever execution has issued upon a judgment obtained against it. The application for winding up is to be by petition. Both parties will appear before the Court in the first instance; and the Court will be empowered to order either that the company be wound up absolutely, or that it shall be wound up unless its debts be paid within a certain time. This may appear to be a rather summary proceeding against companies; but it must be remembered that we propose to abolish the right of suing individual members of companies, and to require that suits shall be only brought against the companies themselves. In fact, we make these companies corporations, and we endow them with the attributes of corporations. The amount of debt which is fixed upon to warrant such a proceeding is 50l. This is an alteration of the law of considerable importance, and I think that it is justified by these considerations:—Suppose a company of large capital—it is clearly for the interest of everybody that, if it cannot pay a debt of 50l. it should be wound up, and I think that there can be no harm in winding up a 136 company so summarily when we look at the analogy of the bankrupt laws. The fact of lying in prison for twenty-one days without paying a debt is an act of bankruptcy: and we propose that the non-payment of a debt for three weeks after notice shall be an act of bankruptcy in the case of a company. The principle on which the concerns of individuals are taken out of their own hands and placed in the hands of assignees is this—that when a man is unable to pay his creditors in full they have a kind of joint interest in him; the failure of their absolute rights sets up relative rights, and makes them a sort of quasi corporation. But in the case of a company not only the creditors, but the shareholders also become a quasi corporation—beside a dividend to be paid there may be also a call to be made—and the principle of the bankruptcy law would then require a double application. In the case of companies, with either limited or unlimited liability, it is desirable for the general good that a creditor should be prevented from the assertion of his private rights when the whole body of creditors have an equal interest in recovering from the company. Under the circumstances, therefore, I apprehend it would be wise to deprive parties of the power which they now possess of suing individual members of the corporation; but in order to compensate for that, we ought to give them a more summary and compulsory remedy against the companies in their corporate capacity, and to make the penalty of the non-payment of a debt to be nothing less than the extinction of the company itself. It is also proposed that a company should have the power of voluntarily winding up its affairs whenever three fourths in number of the shareholders, assembled at any extraordinary meeting held for that purpose, and holding not less than one-half in the capital of the company, should pass a resolution for that purpose. And it is likewise proposed to give existing companies the power of bringing themselves under the operation of this Bill by means of a resolution agreed to by three-fourths of the shareholders, so that there shall be one uniform law with respect to such companies, whether formed before or subsequent to this Act.
I understand that the hon. Member for Paisley (Mr. Hastie), who was such a strenuous opponent of the Bill of last Session, has expressed a wish to know 137 to what extent the Limited Liability Act has been made available in the commercial world. I am afraid I should find it difficult to satisfy the hon. Gentleman by any answer I may give him. Suppose I were to say that very few companies have taken the benefit of the Act, the reply of the hon. Gentleman, no doubt, would immediately be—"Yes, so I prophesied; your wretched principle has already broken down." If, on the other hand, 1 were to tell the hon. Gentleman that a great many parties have availed themselves of the provisions of that Act, he would, no doubt, with equal earnestness exclaim—"Here is the beginning of the end; here are the foundations laid of vast commercial ruin!!" Therefore, Sir, I cannot give the hon. Gentleman any satisfaction as to the operation of that Act. But I will state to the House what has been done. The whole number of companies which have applied to be registered under the Act is not less than 142; of these eight have obtained limited liability; but the recent commercial crisis has prevented many of them from paying up their capital.
Having, Sir, now gone through the various provisions of this Bill, I would observe that, if any hon. Gentleman thinks that in this measure Her Majesty's Government has gone too far in leaving men to their own individual will and wishes, and has done in the way of Government interference too little, I hope he will remember this—that, among all the Governments that ever existed in the world, probably there has never been one which erred on the side of giving too much freedom to commerce. In the glorious reign of Louis XIV., when Racine, Corneille, Fenelon, and Bossuet flourished and adorned the age, the French Government were so grossly ignorant of the true principles of commerce that it actually prohibited the manufacture of goods, except of certain patterns—more especially of textile fabrics; and those things which were not made according to the prescribed form were nailed to the public gallows. That ought to teach us how cautious we should be in placing confidence in, or being led by, the authority of any man, apart from principle; it ought to teach us how much those matters which we have been in the habit of regarding as sure and certain are the effects only of prejudice; and it ought to make us more anxious to do honour to the principles on which all human transactions are 138 founded. When the political economists say "Laissez faire," they do not mean to say, "Leave all matters to blind chance; let everything go on as it may." What they mean by laissez faire is, that we are not to interfere with human laws where other laws so much wiser already exist. Man, Sir, with his free will, his caprices, and his errors, is as much under the rule and government of a natural law as the planet in its orbit, or as water, which always seeks its level. Those laws, planned by Infinite sagacity, have the power of correcting and of compensating errors—one extreme invariably producing another—dearness producing cheapness and cheapness dearness; and thus the great machine of society is constantly kept oscillating to its centre. These laws are not made by a House of Commons; and before any Legislature steps in and attempts to correct them, it would be well that it should consider whether any Legislature can interfere and devise a better code than that which was framed before the first rude essays of mankind, to mould their collective will into a law. Who could have imagined it possible that a state of society resting on the most unlimited and unfettered liberty of action, where everything may be supposed to be subject to free will and arbitrary discretion—would tend more to the prosperity and happiness of man than the most matured decrees of senates and of States? These are the wonders of the science of political economy, and we should do well to profit by the lesson which that science has taught. That lesson is this—To interfere with and abridge men's liberty, and to undertake to do for them what they can do for themselves, is really lulling their vigilance to sleep, and depriving them of that safeguard which Providence intended for them, and helping fraudulent men to mislead and delude them. The right hon. Gentleman concluded by moving to resolve—
That the Chairman be directed to move the House, That leave be given to bring in a Bill to amend the Law of Partnership.That the Chairman be directed to move the House, That leave be given to bring in a Bill for the incorporation and regulation of Joint-stock Companies and other Associations.
§ MR. COLLIERsaid, he must beg to express his thanks to the right hon. Gentleman for the extremely able and comprehensive speech which he had just delivered on a subject of the greatest commercial 139 importance. This was one of two measures in connection with law reform. It was a measure of a right sort, and he wished there were more of them. It was founded on an intelligent and intelligible and legitimate principle; and it carried out that principle. As far as ho understood the object of the first of the two Bills, it was that the man who contracted a debt should pay it and no one else. If a man sold goods to A., knowing nobody but A., then A. alone should be compelled to pay the debt. But the law, as it at present existed, said that if B. had furnished A. with means to carry on his business, B. might receive interest on his money at a rate, however usurious, without incurring any liability; but if, instead of receiving interest, he received any portion of the profits of A., that then he (B.) should be liable for A.'s debt. Why should this be? It was impossible to distinguish between the two modes of remuneration. And was it not far better that a man should be allowed to share in the profits, whatever they might be, than to receive from the trader a certain amount of interest, whether the profits would admit of its payment or not? The second Bill related to partnerships, and its principle affected all associations known under the denomination of Joint-stock companies, such as railways, dock companies, and other enterprises, in which a large amount of capital was invested. Strange to say, these companies, instead of being looked upon as a great national good, had been regarded as public nuisances by our courts of law; and, although thy had been recognised by the Legislature, they were subjected to many severe restrictions, so that a great number of bonâ fide companies had suffered, while many fraudulent companies had not been prevented from pursuing their practices. The Bill now introduced would put all companies on the same footing, and the great principle of the Bill was that any number of persons were at liberty to associate, provided they gave notice of the terms on which their company was formed. This was a valuable principle, and he begged to renew the expression of the great satisfaction with which he had heard this comprehensive measure propounded by the right hon. Gentleman.
§ MR. MALINSsaid, he cordially joined with the hon. and learned Member who had last addressed the Committee in the 140 expression of satisfaction at the statements made by the right hon. Gentleman the Vice President of the Board of Trade in introducing his measures. The subjects of those Bills were of the highest importance to the commercial interests of the country. He had always felt a strong interest in these questions, and he had taken an active part in the discussions that took place in the House last Session upon the Limited Liability Bill. The object of that measure was no doubt good, but the Bill itself was so erroneously framed, that he was confident the restrictions which it imposed should be repealed at the very earliest period of the next Session of Parliament. He had always taken his stand upon the question that a man should be free to enter into any contracts he pleased; but he also felt it was the duty of the Legislature to give the greatest facility to the public to ascertain the precise nature of those contracts. He concurred with the right hon. Gentleman, with perhaps one single exception. He thought that the right hon. Gentleman had adopted the right principle, when he determined to overrule by legislative enactment the decision in the celebrated case referred to as to the liabilities of a dormant partner. He rejoiced that the time had at length arrived—and he believed by the general concurrence of all—that the principle which gave rise to that decision was no longer to prevail, and that the whole subject involved would be reduced to one rational system. A man should only be made liable for what he contracted, and should not be made responsible for that of which he could have had no knowledge. In the general principle of the first Bill of the right hon. Gentleman he fully concurred. He thought it most reasonable that every facility possible should be given for obtaining capital. He believed that they all concurred in the propriety of repealing the usury laws. Then, having removed those restrictions as to the interest of money, the measure proposed by the right hon. Gentleman was only following up the same principle, in declaring that every man should be allowed to invest his money in commerce, and that the utmost freedom as to such speculations should prevail. With regard to the Joint-Stock Companies Registration Bill, the right hon. Gentleman had explained its objects with great clearness and in great detail. He (Mr. Malins) did not propose to go into particulars upon that subject at 141 the present moment. He would only say that he should be most happy and ready to lend the right hon. Gentleman his best assistance in carrying the general provisions of his Bill into effect. With regard to some of its details, there may be some differences of opinion. He himself thought that there were two or three points open to considerable doubt, and he could not pledge himself to the whole of them. When they went into Committee upon the Bill, and were called upon to consider its details, the right hon. Gentleman would have a much better opportunity of explaining and justifying the particular details of his measure than was afforded him at present. Then would be the proper time to suggest alterations deemed important, and of directing attention to particular points. He would mention one by way of example. The right hon. Gentleman provides, in respect to registration, that, instead of being obliged to go to Serjeants' Inn to inspect the register of shareholders, such a register shall be kept at the office of each company, so that every person dealing with it may, with the greatest facility, ascertain the names of the shareholders and the state of its affairs. In the propriety of such a provision he entirely concurred. But what he thought was open to much doubt was this point of the right hon. Gentleman's statement. He proposed that the fact of registration should be held conclusive evidence as to who the contributories were. Now that appeared to him to be a point not so well considered by the right hon. Gentleman as the other features of his Bill. Surely they might presume that there might be some mistake or even fraud committed in the registration of the company. If a name be erroneously inserted, it would hardly be just or fair to make the person liable, because a creditor had found his name in the list of shareholders. With regard to the other great question—namely, the Winding-up Act, it was important to consider its operation. The Committee were aware that that Act passed through Parliament in 1848. Well, that was an Act which probably occasioned more litigation, and a greater expenditure of money in law, than any other subject of a similar character. Under that Act great injustice had been done, because he thought that its meaning was misconceived. The great litigation, unfortunately, arose in consequence of the judgment of Lord Cottenham upon the construction 142 of that measure—a judgment overruling the decision of the present Lord Justice Knight Bruce, then one of the Vice-Chancellors. The latter learned Judge had decided that the Act of 1848 did not apply to abortive railway companies. Lord Cottenham, however, subsequently decided that it did. This judgment of Lord Cottenham led to great litigation, which lasted for years. It rendered it necessary first to consider who were contributors to those companies. Our Chancery reports for five or six years were filled with cases involving the question as to what constituted contributories. Well, after all this litigation the Act had been found most mischievous in its operation, so far as it had been applied to those abortive railway companies. Now, the general principle of the right hon. Gentleman's Bill was most beneficial. He would take a company such as the right hon. Gentleman proposed to make his measure applicable to, namely, one in which the parties, either from insufficient capital, or from other causes, wore unable to carry on their undertaking, and who under such circumstances were desirous of winding up their concern. Now, in such cases the principle of the right hon. Gentleman's Bill would work admirably. There were many imperfections in the former measure which the Bill of the right hon. Gentleman would effectually remove. It was also a wise principle to enact that when a company proposed to incorporate itself under the provisions of the Bill, that such company alone ought to be sued. It was a great misfortune, in his opinion, that the principle of limited liability had not been engrafted on the Joint Stock Registration Act of 1844. The right hon. Gentleman now said most reasonably that the company being incorporated, such company should alone be sued, and that the right of suing individual members under such circumstances should be altogether abolished. The right hon. Gentleman accompanied such a principle with a provision also exceedingly reasonable—namely, if a company be unable to meet their engagements, or should allow a judgment to remain unsatisfied, those facts should be considered as evidence that they were no longer fit to carry on business, and that the company might be wound up. The great evil of the Winding-up Act was, that it gave rise to much litigation as to what constituted a contributory. 143 It was thought for a long time that a provisional committeeman was necessarily a contributory to a company, and, therefore, liable to their debts. After much litigation upon that point, the question was carried up to the House of Lords, where it was held that a provisional committeeman was not necessarily a contributory to the company. That decision had let loose thousands of persons who were before held liable to the debts of the numerous abortive railway companies, which had been attempted to be established in the railway mania of 1845. But the right hon. Gentleman proposed the registration of shareholders as a remedy for all this difficulty, and as he (Mr. Malins) understood the principle of his measure, if the company were found to be incompetent to perform their engagements, they might be at once wound up by the court. The court would refer the matter to the proper officer, who would have to take an account of the assets, to call in and collect those assets, to take an account of the debts, and of the capital that had been paid up. If the shares of the company were £20 each, and that £15 had been paid up, then the officer of the court would only have the power of calling for the remaining £5. The assets in the case would be distributed amongst the shareholders. This, in his opinion, would be so plain and reasonable an enactment that he would afford the right hon. Gentleman his best assistance in rendering it effectual. Those who become losers under the provisions of this Act would have no reason to complain, because they would be enabled to ascertain distinctly the nature of the contracts to which they would make themselves parties. And at the same time the measure would confer—what he and, he believed, the commercial community generally, would consider—one of the greatest boons ever bestowed upon the trading interests of the country. It would remove those absurdities which had so long shackled the commercial freedom of the country, and which, in respect to Joint-stock companies, had done such mischief and imperilled the safety of many families. He said that they ought to remove all fetters from our commerce, and all those dangers that beset society. The present state of the law was continually effecting the ruin of families, without giving a single benefit to the community. He heartily concurred in 144 the general objects of the measures, and he would give to the right hon. Gentleman his best assistance in the endeavour to render them as effectual in their operation as possible.
§ VISCOUNT GODERICHsaid, he begged to offer to the right hon. Gentleman the Vice-President of the Board of Trade his best thanks for the measures which he had proposed, reserving, of course, his opinion upon details until a fitter opportunity for discussing them should arrive. Last year he had regretted that the Limited Liability Act was based upon the existing Joint-Stock Companies Act. His views, however, were now entirely changed, and he no longer entertained that objection. The confining the advantages of limited liability to Joint-stock companies was the imperfection of the present law, and that imperfection the right hon. Gentleman proposed to remove. A complete reform would, in his opinion, be effected by consolidating into one Statute, as was now proposed, the laws of limited liability and Joint-stock companies, and such a measure ought not to be confounded with the tinkering legislation which led to the repeal of an Act in the very next Session after it was passed, and to its enactment in another and very different form. Last Session he (Viscount Goderich) proposed an Amendment to the Limited Liability Bill, that there should be no limit to the shares of companies; he was then opposed by the Government, but he was glad to find they had now adopted his view. Without pledging himself to the whole measure, he felt bound to give it his most cordial support, believing that, when passed, it would be a worthy monument of the comprehensive statesmanship of the right hon. Gentleman.
§ MR. CARDWELLsaid, that knowing the difficulty, the complexity, and the extent of minute detail of the subjects which must have come under the notice of the right hon. Gentleman, he was desirous to express his great satisfaction that the measure had fallen into such able hands. If he understood rightly, his right hon. Friend would repeal several Acts of Parliament, most of which had already led to very great inconvenience and difficulty, both in the Courts of Law and in commercial 145 transactions, and consolidate the law in a single Act, so as to give lawyers and commercial men the utmost facility of reference. The Act for the Registration of Joint-Stock Companies was passed at a time when much of the experience they now possessed had not been obtained, and it contained many provisions of superabundant prudence, which really gave no protection against the evils they now sought to remedy, but created a fictitious security in the minds of the public, by inducing them to trust to Parliament instead of exercising that caution which they alone could effectually use. His right hon. Friend would repeal all the complicated provisions with regard to provisional registration, and there would be a schedule to the Act, in which would be contained the ordinary forms according to which companies, without the least expense of fees or any legal expense, could be constituted. Those were the most valuable provisions of the measure, because these two points were secured—first, that any company could be incorporated without expense; and, secondly, that if any company adopted different rules and regulations from those in the schedule under the Act attention would be attracted and caution excited in the minds of the public, so as to lead them to inquire whether such variation was reasonable or not. He understood that his right hon. Friend incorporated the Wind-ing-up Acts, which, though passed for a most useful purpose, had given rise to very extensive litigation, and so incorporated them as to take away the causes which had led to litigation, thereby securing to the public the benefit of those Acts without the difficulties which had caused them to be regarded with such disfavour in the Courts of Law. The Act passed last Session with regard to limited liability was also to form part of the new scheme of legislation. There was no objection pressed against the Limited Liability Bill last Session which had greater weight with the House than that it ought to be accompanied with extensive changes and consolidation of all the laws affecting Joint-stock companies. He congratulated his right hon. Friend that that objection would now be removed, and that the law with regard to limited liability would form part of a well-considered system of legislation. It would be idle to enter, at that moment, upon any controverted points in the question of limited liability; but, as he understood, the principle laid down by his right 146 hon. Friend was this—that limited liability was not a matter of privilege or right, but a matter of contract and notice, and that no injury could be done to any person who had full notice of liability being limited. It was notorious that under recent legislation there had been a great growth of dishonest companies, which disgraced commerce and lessened the respect of the community for the law of this country; and if his right hon. Friend succeeded in amending the whole law of Joint-stock companies, which had led to such a result, he would identify his name with a work of which any man might well be proud.
§ MR. J. G. PHILLIMOREsaid, he wished to offer his feeble tribute of praise both to the principles of the measures and the remarkable speech by which they had been introduced. That speech reflected the highest credit upon the sound and enlightened views of the right hon. Gentleman. It did not, however, appear to him (Mr. J. G. Phillimore) that the right hon. Gentleman had followed out his principle to a sound conclusion. He would take the opportunity of showing him how dangerous it was to be led aside by authority in the principles of legislation. He was glad to find that the hon. and learned Gentleman opposite (Mr. Malins) had thrown off his Chancery habits, in coming forward upon the present occasion. The whole of the calamities which had been alluded to as having overtaken families were owing entirely to judicial legislation, that was allowing Judges to take a course totally unfitting their position. All the mischief had arisen from the decision given in the celebrated case of "Waugh v. Carver"—one indeed of the most absurd decisions ever come to by a court of law. It was too often the practice to meet any suggestion made for the improvement of the law by the observation, "How dare you oppose your opinion to a decision that has been ratified by so many eminent authorities?" He would remind the Committee that there was not one of the Judges who did not oppose Sir Samuel Romilly in his measure for the amendment of the criminal law. He thought that the Judges very frequently stepped outside of their province in their decisions upon the construction of the law. He should conclude by again expressing his satisfaction at the measures proposed.
§ Resolutions agreed to.
§ House resumed.
147§ Resolutions reported, and Bills ordered to be brought in by Mr. FITZROY, Mr. LOWE, and Viscount PALMERSTON.
§ Adjourned at half after Eight o'clock till Monday next.