§ Bill considered in Committee.
§ (In the Committee.)
§ MR. HUBBARD
said, that when the Bill was first brought to his notice, he could not help attaching weight to the amount of evidence in its favour proceeding from various Chambers of Commerce and from the London Society for the Improvement of the Mercantile Law; but he found upon a comparison a great want of identity between the provisions of the Bill as it now stood, and those of the Bill which had been supported by Petitions. Many of the provisions of the original Bill had been struck out, and the measure as it now stood no longer answered the description to which the Petitions referred. One of the objects of the Bill was to enable clerks and servants to receive a portion of the profits in lieu of or in addition to salary, without becoming partners. But legislation for this purpose was unnecessary, for, according to very high authorities, clerks receiving a portion of their salary in a fixed stipend could even now participate in the profits without becoming partners. When it was asked why legislation was required on this subject, they were told to look back for the last two or three years, and they would see that Parliament had committed itself unreservedly to the principle of limited liability for companies, and therefore it was expedient to persevere in the same course. He, however, maintained that the legislation on that subject was as yet but tentative, and that the Act of Parliament was still on its trial, and he was very far from admitting that it had been altogether beneficial. It had given birth to numberless companies, but they were as yet far too young to give proof of their utility. No less than 2,600 companies had been registered under the provisions of the Act; and 330 appeared in the last Return laid on the table of the House as having been registered within the first five months of the 831 present year. Of those 330 companies thirty-three were banking companies, and thirty-three were hotel companies, numbering among their directors Members of that and of the Upper House. Very probably the two hotels proposed to be established at Richmond, under the presidency of two noble Peers, would be admirably conducted for the comfort of their guests; but he doubted their proving, under such distinguished management, a profitable investment for capital. There were in the Return some companies of an ambiguous character. One company had for its object to deal in church livings and buy advowsons. There was no amount of extravagance which these schemes stopped short of; and he held in his hand the prospectus of a company for enclosing, planting, cultivating, and colonizing the Goodwin Sands. He admitted that occasions might arise when persons combining to carry out some great public object would require to be protected against the unlimited responsibility of ordinary partnerships. Such was the case in respect to the formation of railways, the erection of dwellings for the labouring population, and the establishment of baths and wash-houses. But the motive for granting the same protection in the case of private partnerships altogether failed, as in respect to those there was no public object to be gained, nor did the object demand the extensive combination of capital. If a man lent money to a friend or agent who did not trade beyond the limits of that capital, then he was liable to lose only the amount which he had advanced; but if the agent traded to the extent of five or ten times that sum, then it was only fair, that if any one suffered, it should be the capitalists, and not the innocent creditors. The capitalist would have taken his share of the profits of the trade, and ought to bear an equal share of the losses. Under this Bill, however, the principle on which capitalists would trade was "heads I win, tails you lose." There was at present no difficulty whatever in obtaining credit. In fact, the evil was rather the other way, and some check was required upon the extravagant abuse of credit. The consequence of the system now proposed would be that a man of means could choose a number of agents, and encourage them in the most reckless overtrading, assured, that if affairs turned out badly, he could intrench himself within the limits of the capital which he had advanced to each, 832 and that the creditors could not come upon him for a penny more. It had been said that this system had been introduced into the United States and France. He asked any one who was acquainted with the United States whether commercial character stood high in that country? Was it not true that a man could start in business, fail, compound with his creditors, and, starting again, go through the same process of failure and composition, and that he could do this repeatedly without any check on his course of adventurous speculation? That was not a system which was congenial to English tastes or notions. We placed a high value on commercial integrity and success. The honour of a mercantile man was as delicate as that of a woman, and once tarnished could scarcely ever be retrieved. He hoped that it would be long before we changed our views on such matters. It had been said that experience in France was in favour of this measure. But, on the contrary, as to that country it was not difficult to trace the results of the system now advocated, in the increased number of bankruptcies, which from 4,000 in 1860, had risen to 4,862 in 1861, and had attracted the comments of the Parisian press. He had recently read in La France newspaper the lamentation that the one black spot on the statement of the Minister of Commerce was the enormous increase in the number of bankruptcies. The experience of France, therefore, was opposed to, and not in favour of, this measure. The commercial genius of the two nations was also very different. That of France was distinguished by a love of speculation without industry, while that of England was exhibited in a devotion to industry and in a distrust of speculation. Mr. J. Stuart Mill had been cited as favourable to commandite partnerships; but he nowhere gave any countenance to the idea that capitalists who carried on business through agents should be exempted from all liability beyond the amount of the money they advanced. He trusted Parliament would not sanction the measure now before the House; for if it passed, it would powerfully tend to discourage measured and cautious trading, and would stimulate a system of reckless and irresponsible speculation. He moved that the Chairman do now leave the chair.
§ Motion made, and Question proposed, "That the Chairman do now leave the Chair."833
§ MR. CAVE
said, that as he had been one of the Select Committee who had gone through the clauses of the Bill, he wished to say a few words. There was no one in the House for whose opinions on commercial questions he had a greater respect than that of his hon. Friend the Member for Buckingham. He had listened attentively to his long and able exposition of the principle of limited liability, and had felt relieved when he found that the hon. Gentleman had hardly touched the real point at issue in the present case. He fully concurred with the hon. Gentleman in regarding the benefits of limited liability as extremely questionable. He admitted the principle that a participation in profits ought not to be dissociated from liability to losses, and that while partners were sometimes hardly used, the case of the creditors was generally harder still. There was also no want of capital, not only for reasonable projects, but for the most hazardous and even dishonest schemes. The tendency of limited liability was, in his opinion, to encourage a dangerous spirit of speculation. Many a man helped to set afloat a wild scheme by risking a certain sum, who would not otherwise have dreamed of it, and thus a snare was laid for others. It was, as his hon. Friend said, just like gambling in a lottery, and a lottery had been defined as a tax which pressed unduly on the poor, because they were least able to resist the temptation and least able to bear the losses which they were thus tempted to encounter. But the principle of limited liability had already been settled by the House. It was too late to discuss it; and that being the law, this measure was a most innocent application of it, and indeed would, it seemed to him, mitigate rather than extend the evils of limited liability. Suppose, for instance, that A, B, C traded together, and that credit was given to them as rich men. If the firm came to grief, and it was discovered that A B and C were liable only in a small degree, and not to the extent of their means, then the creditors might truly say they had been deceived. But suppose, on the other hand, that A and B were a firm to whom credit was given, and that when A and B failed, it appeared that C, who had never appeared in the concern, was also liable to the extent of £10,000 of which the creditor had known nothing; surely that would be to the advantage rather than otherwise of the creditors, who thus obtained a better security than they 834 had expected. The principle of limited liability having been once established, this certainly was a most harmless method of carrying it into effect. He looked upon the clause which legalized the payment of clerks according to profits as most valuable. It had been said that this could be done now. Mr. Hering had informed the Committee that such was his opinion; but a great authority, the Member for Walling-ford (Mr. Malins), held a different opinion. It seemed therefore advisable that this doubt should be set at rest. For these reasons he supported the Bill.
§ MR. GOSCHEN
held that the law, as it stood at present, was defective to this extent—that it hampered the legitimate freedom of contract between man and man. He was of opinion that that freedom should be permitted to the fullest extent, and that when a contract was not against public policy it ought not to be interfered with. The opponents of the Bill were, therefore, bound to show that it would be dangerous to trade and credit, and likely to tend to fraudulent insolvency. If that could be proved, then he admitted that no argument as to the desirability of the objects of the Bill in other respects would avail. The hon. Member for Buckingham (Mr. Hubbard) was very fond of laying down the principle that a participation in the profits of a business ought to imply a corresponding participation in the losses. That principle was, no doubt, a sound one; but it was not impugned by the Bill, under which the liability to loss would be equal to the chances of gain. Capital, loss, and gain, would be limited in the same proportions. Practically, in all cases, there was a limit both to capital and liability. A man was liable only to the amount of that which he possessed; and when the responsibility of a capitalist was confined to the amount which he publicly stated he had advanced to a certain firm, he did not see that the creditors had any right to complain. Suppose there was one firm of two persons, each of whom put £5,000, his whole fortune, into the business; and another firm, also of two persons, one of whom invested his whole means, £5,000, and the other only half his means, being also £5,000. In each of these cases the creditors would give credit on £10,000; but while in the second case they would know that one partner had provided £5,000, they would not know at all in the other how much either had invested. It could not be said that this Bill would 835 help to mislead creditors; and, besides, creditors were not always so innocent and credulous as the hon. Gentleman seemed to think. A young firm would be most likely to apply, in the first instance, for assistance to one of the great discounting houses, who could easily learn, by a reference to the register, how much capital had been advanced to them. The effect of the register would be to produce much more certain knowledge and much less vague guessing as to the resources of customers than was now the case. It was all very well for a wealthy and influential firm to say, "We will take our stand on our whole capital—we do not shrink from the most unlimited liability." But the House of Commons ought not to look at the question from the capitalists point of view only—the smaller capitalists and traders ought also to be considered in the matter. He denied that the Bill would lead to a greater number of fraudulent bankruptcies—on the contrary, he thought it would rather tend to prevent them; and he did not see that any one would be tempted to speculate more rashly and recklessly because he had been assisted by an advance of capital. It had been said that the very precautions taken in the Bill were a proof that the promoters themselves apprehended fraud. These provisions were, however, intended to define the responsibility, and were more in the nature of a land-mark than a fence. The principle of liability to loss going hand in hand with participation in profits was not impugned by the Bill, for the capitalist would still be responsible to the extent of the sum advanced, which would, in turn, be the measure of his share of profit. The object of the Bill was not to give the means of obtaining credit, but of deserving it. It was impossible to conduct any mercantile business without involuntarily taking and giving credit for longer or shorter periods at every moment, and it was very desirable that young firms should; and it was for this reason, and not in order to be able actually to borrow money, that young firms required credit. Such credit they could get by the support of a limited partner. At present, the law forbade a man to do what he liked with his own. One could not take a partial interest in an enterprise which one approved without risking one's whole fortune. He supported the Bill on the ground that there ought to be as full and perfect freedom of contract as was consist- 836 ent with the interests of commerce and morality.
§ MR. VANCE
said, it was enough to prove that there was no necessity for the Bill, and he believed that the Bill was absolutely and entirely unnecessary at the present moment. He thought the existing Limited Liability Act was sufficient for the purpose of the commerce of the country. He did not think that principle ought to be extended to private partnerships, because there was ample capital ready to be employed in all legitimate undertakings in private partnerships. In the case of a limited liability company, the word "limited" warned the creditors of the state of affairs; but under this Bill they would be able to ascertain the condition of a firm only by searching the register. He denied that private partnerships were merely contracts between man and man. There were third parties who were interested, and they were the creditors. The system of limited liability in other countries provided certain checks which were wanting in this measure; and as there was no necessity or demand for it, he should vote against it.
§ MR. W. E. FORSTER
, said, that the hon. Member who had just spoken seemed to misapprehend the character of the Bill. It was not a Bill for the purpose of increasing or finding capital for any particular species of business, but a measure to remove the unnecessary interference which by law now existed between the buyer and the seller. He could not see why a person should not be allowed to make a bargain with a firm which consisted of partners with limited and unlimited liability, when he knew the position in which it stood; nor did he see why a man should not advance money to a firm without risking his whole capital. It was not their duty to secure the capitalist by law—the capitalist must secure himself. Nor was it their business to protect the creditors—all that they were bound to do was to take care that the creditors had the opportunity of ascertaining the position of the firm; the law neither could nor ought to save them from the consequences of their negligence if they did not choose to make proper inquiries. All he had to do was to look into the register; and if he found that so much capital was engaged in the concern, it was for him then to say whether he would lend his money or not. Such a register would be very generally useful, for by its means information would be fur- 837 nished to men in business which was now often beyond their reach.
MR. T. BARING
said, he wondered whether the promoters of the Bill really thought that it could or ought to be passed in the present Session. This was not a Bill which, if it became law, would be a dead letter, and it ought not to be considered in a House of not more than twenty or thirty Members, and in the absence of all the legal authorities of the country, as was the case at that moment. Such a Bill as this ought not to be submitted to them by a private Member, just as he would a Turnpike Bill or any measure of that kind. If such a Bill were necessary, it ought to have been introduced by the President of the Board of Trade on the authority of the Government. So far from that having been the case, the right hon. Gentleman the President of the Board of Trade opposed, on the second reading, many of the provisions of the Bill. It was true that since then the Bill had been referred to a Select Committee; but he was in a position to state that no two members of that Committee were agreed as to what was the present state of the law upon the subject, or what the effect of the Bill would be. There were two eminent members of the legal profession on the Committee, who differed as to whether the 14th clause was necessary at all. Under those circumstances, ought they now to proceed with this measure, when none of the Law Officers, and not a single member of the legal profession, was in the House. The principle of this Bill was this—that a person might register the amount of money that was placed in a firm, but there was to be no register or limit of the engagements into which such firm should enter. There would be nothing to show whether the money had been lost, or whether any portion of the profits had been left in the concern. It was proposed in the Select Committee that a provision should be introduced, that the word "registered" should be used by all firms taking advantage of this Bill; but that would not suit the promoters of the measure, and so the proposition was rejected. This Bill struck at the principle upon which British commerce had always been conducted—that where a man received any portion of the profits of any trading concern, he should also bear his share of the losses that might be incurred. That principle supplied a proper stimulus to caution; but the present measure would destroy all such stimulus. Con- 838 sidering the state of the Session, he put it to the hon. Member for Birmingham (Mr. Scholefield), whether it would not be better, in the interest of those who were promoting this measure, to withdraw the Bill for the present Session; and he would ask the Government whether they could support the suggestion for going into Committee on this Bill when there was not a single Law Officer of the Government present?
§ MR. WEGUELIN
said, that if a capitalist had the means of knowing with whom he was dealing—which was what the present Bill proposed to afford him—it could not be said to be a Bill for the encouragement of fraudulent trading. He maintained that there was a great public advantage to be gained by this Bill. Its effect would be to make the trade of the country depend, not upon credit, but upon responsible capital. This was an important public consideration. Every one knew upon what flimsy and specious pretences credit could now be obtained. In the case of the Western Bank of Scotland it was proved that they had given credit to one firm with unlimited liability, which had drawnbills on thirty-seven men of straw in London. That was the way in which business was carried on under the present law; but if this Bill was passed, the capitalist would have the means of knowing with whom he was dealing; and if he misplaced his money, it was his own fault. There was plenty of money to carry on trade, but it was in the wrong hands; it was in the hands, not of those who carried on trade, but of great capitalists and bankers, who were not responsible at all. Upon some flimsy pretence a man might raise £100,000, and thereby unduly extend his credit; but if a capitalist were allowed to pay into a firm some £20,000 or £30,000, the credit attached to that firm would be in proportion to the loan capital, and to the talent and character of those engaged in the business. In fact, limited liability was a restriction upon credit, the undue extension and abuse of which was one of the main causes of all those calamitous crises which had afflicted our trade and commerce in recent years.
§ MR. MILNER GIBSON
said, the Government introduced a Bill in the year 1855 for the purpose of amending the law of partnership, but it was not received favourably by the House. He apprehended, that if he were to introduce a similar measure now, he should not get much sup- 839 port from the hon. Member for Huntingdon (Mr. T. Baring). He (Mr. Milner Gibson) had heard no reason for the House not going into the consideration of the clauses of the present Bill. The House had read the Bill a second time; at that time the hon. Member for Birmingham was told to take his Bill to a Select Committee. It had been considered by a Select Committee, and now the House was asked to decline to consider the clauses, and upon that stage the hon. Member for Buckingham took the extraordinary course of raising a general debate upon the principle of the measure. The hon. Member ought to have done that on the second reading; and he (Mr. Milner Gibson) protested against this most harsh and unusual mode of defeating a measure. He admitted that the clauses were still susceptible of improvement. The argument of the hon. Member for Buckingham was, that a trader ought not to be allowed to trade on borrowed capital, as would be provided by this Bill, without the lender being liable to the full extent of his means for the debts of the concern. Why, under the present law a person could very nearly do all that the hon. Member for Buckingham objected to. The hon. Member wanted, in fact, to alter the whole law of partnership in a restrictive sense. He (Mr. Milner Gibson) thought the House ought to proceed to the consideration of the clauses.
§ MR. BAZLEY
thought the effect of this Bill would be to protect private individuals at the expense of the general public, and therefore he should support the Motion of the hon. Member for Buckingham. The vast structure of English commerce had been raised on the principle of individual responsibility, and he trusted the House would not sanction any departure from that doctrine. The Committee would exercise a sound discretion in deferring the consideration of this measure; and he hoped the hon. Member for Birmingham would withdraw it.
said, the principle of the Bill was precisely the same as the principle of the existing Act, with this exception, that under the existing Act there must be seven persons in a limited liability company. If seven, why not two, as proposed by this Bill? The principle in both cases was precisely the same. Hon. Members were fond of talking about the public interests being affected by this Bill, but they never said how the public interests were to suffer by it. In point of 840 fact, the Bill would protect the public as far as the public could be protected in such a matter. The hon. Member for Huntingdon (Mr. T. Baring) of course opposed the measure, because he invariably opposed any measure of progress. The great object of this Bill was to draw nearer and nearer talent and capital. At present capital was kept apart from talent, and so hundreds of men of the stamp of the Stephensons, who had power to benefit this country, passed away unknown.
§ MR. STANILAND
said, that there would be something in the argument of the hon. Member for Buckingham if it could be shown that under the existing law there was no reckless or rash speculation; but the fact was, that in nineteen out of twenty instances, where people failed during preceding monetary crises in this country, they were persons who traded recklessly on borrowed capital. How could the position of the capitalist be worse because he knew the amount of capital in the firm with which he transacted business? It seemed to him that this was a question between those who possessed colossal capitals and those who were in an inferior position. He should support the Bill.
said, he should oppose the Bill, though he was a warm advocate of limited liability. The hon. Member for Sunderland (Mr. Lindsay) said, that this Bill would have the effect of bringing talent and capital together, but there were two descriptions of talent which might be employed in cases of this kind. One of them was applied to the carrying-on of legitimate and honest trade, and the other was used in ensnaring innocent persons into investing their money in swindling undertakings, which ended in their ruin. This Bill, he believed, was likely to encourage speculators of the very worst kind, and for that reason he would give it his opposition.
§ Question put, "That the Chairman do now leave the Chair."
§ The Committee divided:—Ayes 40; Noes 70: Majority 30.
§ Clauses 1 to 8, inclusive, agreed to.
§ Clause 9 (The Firm of a Limited Partnership shall not include the name of any Limited Partner, or else Limited Partner to become General Partner.)
§ MR. GOSCHEN
said, that the terms of this clause would limit the operation of the measure in an undesirable manner. Great importance was attached by mercantile 841 houses to the preservation of the historical names of the firm, even after the individual bearers of those names had retired or passed away. But under the terms of this clause that could not be done if a retiring partner, who had given his name to the firm, had a son of the same Christian name as his own also in the firm, and if such retiring partner wished to leave a certain portion of his capital in the business. To remove that anomaly, the hon. Member therefore moved a verbal Amendment in the clause.
§ Amendment proposed, in line 18, after "registered," leave out to the end of Clause.—(Mr. Goschen.)
§ MR. MURRAY
thought the difficulty might be overcome by the use of the words "senior" and "junior" where the names of the father and son were identical.
§ MR. THOMSON HANKEY
said, that that suggestion would not meet the necessities of the case. If he were to retire from the firm to which he belonged, he would be precluded by this clause from leaving a portion of his capital with it as a limited partner, merely because he bore the same name as his father, whose name was still continued by the firm.
§ MR. ALDERMAN SALOMONS
objected to the Amendment of the hon. Member for London (Mr. Goschen), which he believed would damage the Bill exceedingly.
§ MR. HUBBARD
also opposed the Amendment. This Bill had been recommended to them on the plea that everything under it was to be excessively frank, transparent, and straightforward. Yet now the hon. Member for London proposed that firms should be carried on under limited liability with names which had no real connection with them.
§ MR. C. TURNER
thought the use of obsolete or fictitious names should not be permitted in the case of partnerships with limited liability.
§ SIR STAFFORD NORTHCOTE
understood the object of the clause to be to prevent the style of a firm from including the name of a limited partner "or any name identical therewith." He would suggest that the difficulty might be obviated by requiring that where the names were identical there should be some additional words of description as to residence, avocation, or the like, so as to distinguish the limited partner from the general partner.
§ MR. GOSCHEN
was disposed to think 842 his Amendment went too far. The best way, perhaps, was to negative the clause now, and have it brought up in a different shape in the Report.
§ MR. W. E. FORSTER
thought the object should be so to frame the clause as to prevent fraud by an unlimited partner changing himself into a limited partner without its being publicly known.
§ MR. C. TURNER
observed, that a fictitious credit was often given to limited partnerships by their agents abroad, who were in the habit of drawing upon them without distinguishing them as limited. The law did not make that punishable.
§ MR. ALDERMAN SALOMONS
thought this a matter of most momentous character. The distinction between the general and limited partners must be preserved. The name of the unlimited partner appeared; and if he contracted debts, he was liable to the whole extent of his fortune. The names of the limited partners did not appear, and they were not the parties to whom credit was given. Their liability was therefore limited.
§ MR. SCHOLEFIELD
suggested that the Amendment should be withdrawn and brought up again on the Report.
§ Amendment agreed to.
§ Clause, as amended, agreed to.
§ Clauses 10, 11, and 12 agreed to.
§ Clause 13 (General Partners only to be made bankrupt).
§ MR. MILNER GIBSON
observed, that there was a defect in the Bill which ought to be remedied. The hon. Member for Birmingham (Mr. Scholefield) had defined the rights and liabilities of a limited partner in case of the bankruptcy of the general partner, but not in any other case. It was very important that the rights and liabilities of limited partners should be clearly defined. Had they any power of interference? Could they call for the inspection of accounts? Could they take an active part in the making of contracts or managing the business? The term was at present unknown to the law; and the point was the more important, because, by a recent decision of the House of Lords, a person might lend money to a trading concern and receive interest varying with the profits, without being constituted a partner. 843 They might raise a doubt as to that by this Bill, unless they clearly defined the rights and liabilities of limited partners.
§ MR. ALDERMAN SALOMONS
thought the Committee upstairs had directed their attention to that point. On the Continent the name of no limited partner appeared in the partnership. All parties whose names appeared were solidaires—that is, they were liable to the whole amount of their property. The limited partners could not ostensibly carry on the business. If they did advise, or take any such responsibility, they would become unlimited partners.
§ MR. CAVE
said, that the Committee had carefully considered the point, which had been brought before them more than once by the President of the Board of Trade. The Committee had come to the conclusion that there was so much doubt about the length to which the decision of the House of Lords went that it would be dangerous to rely upon it.
§ MR. POTTER
thought the impression in the Committee was that a person lending £5,000 to a concern as a limited partner might take any share in the conduct of the business, or do just as he pleased, only his liability as a partner was restricted to £5,000.
§ Clause agreed to.
§ Clauses 14 and 15 agreed to.
§ Clause 16 struck out.
§ Remaining Clauses agreed to.
§ New Clause (Recovery of Penalties) agreed to.
§ MR. CHILDERS
wished to know what would be the effect of the Bill upon firms trading in England and the British possessions. The passing of the Limited Liability Act had led to great inconveniences. Partnerships had been formed in London whose business was conducted in some of Her Majesty's possessions abroad, and doubts had arisen as to whether the law of limited liability extended to those firms abroad, and he believed a circular had been sent to the Governors of British possessions acquainting them with these doubts, and giving them permission to invite the Colonial Legislatures to pass some measures upon the subject.
THE SOLICITOR GENERAL
said, it was not easy to deal with abstract cases, but he did not see how, without some 844 action by the Colonial Legislatures, the case suggested could be met. If the firm were an English firm, its dealings in any part of the world would be governed by English law.
§ House resumed.
§ Bill reported; as amended, to be considered on Monday next, and to be printed. [Bill 242.]