SECOND READING.

HC Deb 24 March 1863 vol 169 cc1869-93

Order for Second Reading read.

MR. SCHOLEFIELD,

in rising to move the second reading, said, the Bill contained a considerable number of provisions, but the main one was intended to extend the principle of limited liability to private partnerships, and to enable clerks to share in the profits of a concern without incurring the liabilities of partners, or acquiring the rights of partners. There were also clauses introducing the principle of arbitration into partnerships, where arbitration clauses did not already exist; and, finally, there were provisions for registering the names of parties not already mentioned in the titles of the firms to which they belonged. The Bill contained so many different provisions that it had provoked hostility in various quarters; but he might say at once that he regarded as its leading principle that which related to the limited liability of partners. No one would deny that contracts, whether of partnerships or anything else, should be as free and un- restricted as possible, excepting where they were immoral in themselves or adverse to public policy, or where they were so susceptible of fraud that it would be better to refuse than to admit them. Nor was he then called upon to defend the principle of limited liability, for it had already been sanctioned by Parliament, and was, in fact, part of the law of the land. He merely had to advocate the application of the principle to private partnerships. At present, if a capitalist wished to assist a relative, a deserving clerk, or an inventor, there were only two modes by which he could do it. One was, by lending money at a fixed rate of interest; and the other was, by becoming a partner of the person whom he desired to befriend. If he lent money at a fixed rate of interest, he might not be tempted by the amount which he would receive; or if he obtained a satisfactory amount, it might be far too heavy for the business to bear, especially if the business were one of fluctuating profits. On the other hand, by becoming a partner in the concern, he made himself liable to his last acre and his last shilling. Few men were disposed to run so great a risk, and the consequence was, that a great deal of capital which would otherwise be introduced into commercial enterprises, and so brought to the aid of men of intelligence and perseverance, now went into other speculations, many of them in foreign countries, which were thus enriched at the expense of our own. The present Bill was meant to obviate that difficulty. Its object was to enable any capitalist, if he felt so disposed, to advance a fixed sum of money to a private partnership, becoming a limited partner in the concern, liable only for the amount he had placed in it. That facility, however, was accompanied by stringent provisions of registration, and the registration would give the names of all the partners, limited as well as unlimited, showing the amount of money which each limited partner had put into the concern, and stating the conditions upon which, and the time for which, it was advanced. It would afford, in short, all the information which creditors had a right to ask. The name of the limited partner would not be mentioned in the title of the firm, and he would not be liable to bankruptcy; but of course it would be different with the general partners, who would be liable to their last farthing. He need hardly say that the subject of limited private partnerships was not a new one to Parliament. So long ago as 1782 an Act had been passed in Ireland, the object of which was precisely the same as that of the present Bill. In 1836 the right hon. Baronet the Member for Portsmouth (Sir Francis Baring) prepared the heads of a similar measure; and in the following year Mr. Bellenden Ker, in a Report drawn up at the request of the Board of Trade, admitted that the system was in most successful operation throughout the Continent. Two high authorities—Lord Overstone and the first Lord Ashburton—gave evidence on the subject before a Parliamentary Committee in 1844, the first objecting to any change of the law, and the second expressing himself as, upon the whole, favourable to limited liability, on the ground that it would bring out a great deal of capital now lying dormant or sent to other countries. In 1851 another Committee recommended that power should be given to lend money for periods of not less than twelve months, at rates of interest varying with the rates of profits, the lender not being liable beyond the sum advanced, and proper precautions being taken against fraud. The Mercantile Law Commission in 1853 was divided in opinion, the majority deciding against limited liability partnerships, but three of the Commissioners— Mr. Baron Bramwell, Mr. Anderson, and the hon. Member for Bridport—declared themselves in favour of limited liability, and signed a separate Report to that effect. In 1854 the House, upon the Motion of the hon. and learned Member for Plymouth (Mr. Collier), affirmed a Resolution declaring that the law of partnership which rendered every person who, though not ostensibly a partner, shared in the profits, liable for the whole debts of the partnership, was unsatisfactory, and ought to be so modified as to permit persons contributing to the capital to share in the profits without incurring a liability beyond a certain limited amount. Such was the decision of the House in 1854, and the Bill which he then submitted to their consideration was really founded on that Resolution. The present state of the law on the subject did not rest upon any statute, but on a decision of Chief Justice Eyre in 1793, which was impugned by men of great eminence, among whom were Mr. Baron Bramwell, the right hon. Gentleman the Member for Calne (Mr. Lowe), and Mr. Rickards, counsel to the Speaker. Mr. Stuart Mill, Mr. Senior, and other distinguished economists, also advocated this principle; the whole consti- tuting a sufficient weight of authority to justify him in claiming a favourable consideration for his proposal. The system of limited liability was, moreover, in operation on the Continent of Europe as well as in the United States of America, and it was favoured by some of our most eminent legal societies, and supported by a great number of the chambers of commerce, though he was sorry to say not by all, one of the exceptions being that of the city of Glasgow, whose objections would be stated by the hon. Member for that city (Mr. Buchanan). If the House should be pleased to agree to his Motion, he would ask that the measure be referred to a Select Committee. He begged to move that the Bill be now read the second time.

Motion made, and Question proposed, "That the Bill be now read a second time."

MR. BUCHANAN

Sir, the Bill before the House should have been divided into two or more Bills, as it contemplates several distinct and separate objects. The most important of these is the extension of limited liability to all partnerships, and the other next in importance, is the registration of partnerships. It would have been desirable to have had an opportunity of discussing these subjects separately, as many who approve of registration of partnerships are opposed to the extension of limited liability. This appears evident from the Petitions which have been presented to the House. It might, therefore, be a desirable course to refer the clauses of the Bill, as to registration, to a Select Committee. It would then be found what are the practical difficulties to be overcome, whether it is possible to define a partnership with sufficient clearness, whether partnerships for special purposes and for short periods should be registered, and whether the trading of the poorer classes should be burdened with the cost and trouble attending registration. All these are matters of detail, and if there is no objection to the principle involved, might with advantage be left to the discussion of a Select Committee. But I object to adopting the same course in regard to the more important part of this Bill, which proposes to extend the principle of limited liability, by making it permissive in all partnerships.

Objecting strongly to that proposal, I have thought it only fair to those hon. Members who may agree with me, as well as to the numerous mercantile bodies who by petition or otherwise have expressed their hostility to the Bill, to move an Amendment, which will at least produce discussion, and test the opinion of the House. I am sure that the hon. Member for Birmingham, whose judicious and practical course in this House no man more appreciates than myself, will not regard what I have proposed to be discourteous, more particularly as it coincides with the advice and deliberate opinions of various commercial bodies whose sentiments are entitled to great consideration. I have had the honour of presenting a petition from the Chamber of Commerce of Glasgow, objecting to the extension of limited liability; the Chambers of Commerce of Halifax and Hull have followed the same course; and the Associated Chambers of Commerce at their recent annual meeting, held in London in February, have also condemned that principle.

I shall not notice the various steps which have been taken with a view to alter the law of partnership, by introducing limited liability previous to 1853; and I refer to the Report of the Royal Commission appointed in that year, principally because it contains the most valuable arguments and facts bearing on the subject, and may be regarded as a text book of the theory and practice of limited partnerships. The Commission consisted of eight Members, all of them men of high position, and legal or mercantile experience. After examining much evidence contained in written replies to queries circulated by the Commission among leading statesmen, lawyers, and merchants at home, and having also communicated with merchants in foreign countries, they came to the conclusion, by a majority of six to two, that it was inexpedient to change the law of, partnership. But this decision did not abate the ardour of the supporters of limited liability. In 1855 a Bill was introduced on the Motion of the right hon. Gentleman the Member for Kilmarnock, on behalf of the Government, and became law, enabling joint stock companies to be registered with limited liability. A further step in the same direction was made in 1858, when banking companies were enabled to avail themselves of the same privilege. In regard to that legislation, it is not my intention to say a single word, either in approval or condemnation. The wisdom of Parliament has sanctioned, and in the recent consolidated statute has deliberately re-enacted, the principle of limited liability in regard to joint-stock companies and banks We are now asked to take a much more important and more perilous step. We are asked to permit this limitation of liability in all partnerships, by adopting the French form of commandite companies.

It is therefore high time to inquire what has been the success of our experiments hitherto. And first of all, have we had sufficient time to judge of these statutes, which have only been perfected by the consolidated Act of last Session, and exist on the statute book only eight and five years respectively? There has not, therefore, been a long experience of this new principle in our mercantile law such as to justify a further advance in the same direction. But it may be said —Has there been any marked success at all? Has public opinion sanctioned the change of the law by any distinct and unanimous expression? If there really had been a general agreement in favour of limited companies, there would be sufficient proofs of it in the general adoption of the system. Three Returns in regard to limited companies, have been presented to the House, the first and last on the Motion of the hon. Member for Argyllshire, and the second on the Motion of the hon. Member for Lancaster. By the first of these Returns it appears that during three years, from the 17th July 1856 to the 29th July 1859 (omitting the first six months after the Act came into operation), 1,010 joint-tstock companies were registered in England, or 336 annually; and during the same period 290 of these companies were abandoned, or nearly one-third of the whole. During the period embraced by the second Return, two years and a half, there were registered 901 companies, and 73 abandoned; to which must be added the abandonments in a supplemental list, coming down to 1862, and amounting to 214 additional, making 287 companies abandoned, of 901 registered, or considerably above a third. The last Return is for the year 1862, during which period 423 companies have been registered, and 61 abandoned, including a supplemental list of companies previously returned. Similar Returns applicable to Ireland and Scotland have been presented, and give nearly the same results. In seven years the whole number of companies registered in England has been 2,334, and of these 638 have been abandoned, or something approaching to one-third of the whole number. Any one who considers the enormous extent of English commerce will admit that these figures are significant, and indicate no great desire on the part of the public to enter into such companies. The great boon of limitation of liability seems so far to have been little appreciated. As regards banks, the Returns are even more suggestive. Since the passing of the Act, in 1858, only nine banks have been registered with limited liability, and of these one has been abandoned. None of the old-established banks have availed themselves of the privilege, so far as the Returns show; but it is understood that two banking companies one at Manchester and one at Liverpool, have recently been reconstituted on that principle. During 1862 thirty-six banks have been registered, many of them quite recently, and as to all we have only a short experience. Again, it may be asked, where is there any proof of public anxiety for limited banking companies? Colonial banks incorporated by charter and with special conditions of liability (generally twice the amount of shares) are not included in these remarks. Of the 2,334 companies registered, 638 have ceased to exist, dissolved, wound up, and many of them bankrupt. It is to be regretted that the Returns before the House contain no records of the winding-up of these companies in the courts of law. It is believed that in many cases they would present examples of reckless mismanagement, and not unfrequently of swindling. In all of them it will be found that debt has been freely incurred, and that the dividends for distribution among creditors have been small. The hon. and learned Member for Guildford, whose great experience in the courts of law entitles his opinion to much weight, said, in the debate on the 13th May, 1858 — In the cases [of limited liability companies] which had come into the courts, it had generally appeared that all the money which had been paid up was spent, and that there was nothing for the creditors. No doubt, subsequent experience has been of the same kind, though, so far as I know, not attested by the same high authority. If current rumours are to be trusted, the disclosures made in the winding up of these companies continue to be disgraceful.

All these facts afford no encouragement to extend this system. The advocates of this Bill are bound not only to show that so far there has been success in the work- ing of their principle, but that such success has been marked and decisive. The burden of proof rests with them; they must establish a success which warrants a farther advance in the same direction, and we ask for facts to justify that course. But it is said, limited liability and commandite companies have worked well in other countries. I confess that I have been unable to find any conclusive proof of that great success; at least, it is not to be found in the evidence laid before the Commission of 1853. France has been mainly relied on, and the forms of the French law have been imported into this Bill But, let any one go over the evidence, and he will find that instead of a history of great success, we have only apologies for non-success from the principal French witnesses. They have told us, not that the commandite principle has succeeded, but that it has been abused. Even the hon. Member for Bridport, who was one of the Commissioners and reported favourably of the French law, does not deny that it has been abused, and that the practice of mixing up the two different principles of sociétés anonimes and en commandite ought to be abolished. I cannot do better than refer to the summary of this part of the argument in the Report of Mr. Slater, one of the Commissioners, which will be found at page 44 of the Report. To the same effect Mr. M'Culloch has written in the late edition of the Encyclopoedia Britannica (article "Partnership").

It is alleged that in America the success has been great, but the testimony to that effect is not unanimous. Sir William Brown, well known and respected in this House, Messrs. Haven and Curtis, of Boston, Messrs. Biddle of Philadelphia, and Binnie, an eminent American jurist, all agree as to the frequent abuses resulting from sociétés en commandite. To the same effect is the testimony of Mr. M'Culloch, in the article already alluded to. From Holland and Belgium also we have conflicting testimony as to these societies. In all cases there is an admission of abuses, and numerous proposals for remedy. Again, it may be asked, are these evidences of success sufficient to warrant us in following these foreign examples? Do not tell us that the principle is a good one, but has been ill-worked. You ask us to adopt a new law, and on you lies the proof that it has elsewhere succeeded. Your argument requires that you should have not partial, but great, and even bril- liant success. I confess, I do not know where such proof is to be found. From anything that appears in evidence, at home and abroad, we are not warranted in making further changes in our law. It is merely to carry out a theory that we are asked to adopt the Bill. The Legislature has sanctioned the principle of limited liability in recent statutes; and in order that there may be uniformity in our laws, all partnerships are to be brought under the same category. But that is not a practical argument. In many cases it may be right to go a certain length, and quite wrong to go further. It remains for those who demand a further change in the law, to prove that they are recommending a safe course. But further it has been said, why should parties be restrained from forming any contracts which they may deem for their interest? If the conditions are avowed, and contemplate a legal object, there should be no impediment to such contracts. Interference and restraint are contrary to the principles of freedom recognized in recent legislation. No one has put this argument with more clearness and power than the right hon. Gentleman the Vice President of the Board of Education, who says, at page 84 of the Report— The only case in which the State is justified in prohibiting parties from contracting, is where a contract arises out of a breach of law or morality, as gambling, or is made for the purpose of a future breach of law and morality, as smuggling, or is in itself a breach of some other substantive law, as insuring an enemy's ship. I can find nothing against morality, nothing against public policy, in the legal sense of the word, in contracts of limited liability; and as to whether such contracts are advantageous to those who enter into them, afford facilities for fraud, tend to impair the credit of the concern, or encourage unhealthy speculation, I think we may fairly leave individuals to judge, without State interference. This argument is carried too far when it assumes that the State, as guardian of the public interest, is under no obligation, in so far as just and equal laws can accomplish it, to prevent fraud. It is much the same as if it were maintained that the State is not bound to prevent larceny. The great principle salus populi, summa lex, requires that the freedom of the subject shall be restrained in various respects. All law is a system of restraint. A man may not scatter firebrands, nor randish deadly weapons, nor sell poisons; neither ought he to be allowed to make contracts manifestly affording facilities to fraud. In the opinion of the most competent authorities, the further extension of limited liability would produce wholesale swindling. If so, the State is not only bound to afford no facilities, but to resist to the utmost whatever may lend to such consequences. Of course, the weight of this argument will depend on the proof that limited liability tends to encourage contracts of a collusive and fraudulent kind, and that will be attempted to be shown. In the mean time, I may say that the great objection to such companies, their inherent and ineradicable defect, is that they open a wide door to fraud. Even the hon. Member for Bridport, in his able and valuable paper in the Appendix to the Report of the Royal Commissioners, has guarded his statement of the general principle that there should be perfect freedom in contracts, by the notable reservation, "guarding against wilful deception." If wilful deception could be guarded against, this Bill would stand in a better position, but the proviso of the hon. Member cannot be made effectual, and his whole argument is consequently undermined.

As has been already said, the Bill before the House has adopted the principle of the French law of commandite. The third clause shows what is the nature of the proposal. Any company consisting of two or more persons, may be registered as a limited company. Two persons, of whom one shall be the general partner—the gérant of the French law—and the other the special partner, or commanditaire, upon complying with certain conditions of publicity, as narrated in Clause 4, may demand of the Registrar of Joint Stock Companies, to be registered as a limited company. It may seem an extreme case, but it is not improbable, that two persons might form such a partnership; the one possessed of capital, the other of skill. If the capitalist should pay up the capital to be registered (though for the actual payment there is no security), it would be known to the world; but as to the general partner, there is no certainty that he shall have paid up or be possessed of anything at all. These parties might proceed to trade, to contract debts, to divide profits, whether earned or not. and finally become insolvent, leaving nothing for their creditors, though their debts may have exceeded the amount of their registered capital twenty times over, and the nominal profits which have been drawn out be more than the original stock of the company. It must be manifest that such a law would afford the temptation and the opportunity to fraudulent and collusive contracts among partners—to a system of false valuations and dishonest accounting, rendered easy, as every practical merchant knows, by the difficulty of appreciating mercantile assets, scattered over the world. The first marked distinction beween the existing law of limited joint-stock companies and the commandite companies to be formed under the present Bill, consists in the different objects which they respectively contemplate. Hitherto, limited joint-stock companies have been usually registered for purposes of public advantage, as the supply of water, gas, public parks, canals, or undertakings of risk and magnitude, beyond the reach of private enterprise. If the Returns on the table are consulted, it will be found that such has generally been the character and objects of these companies. The present Bill holds out no such pretence; private gain is the only object. Whatever indulgence or relaxation of the law it may have been considered expedient to make in the public interest, no similar favour should be shown to private speculations.

Farther, seven partners are required by the law to be associated in a limited joint- stock company. Two partners, one of whom may be a man of straw, may constitute a partnership under this Bill. The difference is important, for seven men cannot combine to defraud their creditors with the same facility as two. The joint-stock companies were required to make their proceedings public. The amounts of capital subscribed, and the amounts paid, were specified and registered. There was a periodical audit provided to be made by neutral auditors, and skilled accountants scrutinized the balance-sheet before profits could be declared. All these precautions in the public interest are to be abandoned. There is to be no published statement of the whole capital account, much less of the items of which it is composed, whether of cash or goods. There is to be no means of knowing whether the limited capital, which is registered, has been actually paid up. There is no provision for a scrutiny of accounts before profits are declared; even an ordinary balance by the partners is not enjoined. For anything that appears to the contrary in the clauses of the Bill, alleged profits may be divided without being earned. If subsequent losses occur, there is no provision for making up the capital to the amount registered by the special partners, so that the register itself may become a snare, instead of a guide to the creditors of the company. On all these points, I cannot do better than quote from the Report of the Commissioners; and I shall briefly refer to the opinions of Lord Overstone, than whom there can be no higher authority; of that acute and learned Judge Lord Curriehill, one of the Commissioners, besides several Members of this House, whose opinions I quote, both as having an opportunity to correct me, if I shall mis-state them, and as being generally opposed to my views. Lord Overstone's opinions will be found at page 96 of the Report. The quotation from Lord Curriehill's Report is at page 17; the hon. Member for Calne, page 84; the hon. Member for Manchester, page 100; and the hon. Member for Peterborough, at page 102. With these high authorities, we are entitled to say that any Bill should be rejected by this House which neither requires the publication of the whole capital of a company nor provides machinery for audit of accounts or the replacement of lost capital. One point may be noticed, though in itself of little consequence. The French law prevents the special partner from interfering in the management of the commandite company. The provision is of little value, in so far as it is impossible to prevent the co-partners from holding unofficial consultations which might equally control the gérant as direct interference. But the principle of the French law is good, in so far as it is meant to prevent a partner with a limited risk from sporting with the funds of the company. But even this safeguard, imperfect as it is, has been omitted in this Bill. Nay, what is still worse, the special partner is not prohibited from signing the firm of the company. For anything that appears to the contrary, he may commit his co-partners by word or writing to any extent, while he himself incurs a limited risk only. The only safeguard proposed by the Bill against acts of management by the special partner is that his name shall not appear in the firm. Farther, the trading of individuals for their own account, frequently the most prudent and efficient trading, is placed at an unfair disadvantage by being exposed to the reckless competition of limited companies. But it will no doubt occur to many, why should this be so? If two partners, one of whom may be a man of straw, may trade limited, why may not an individual also announce that he has registered a limited amount of his capital, which alone will be available for his trade debts. True, this is an argumentum ad absurdmn, but consistency requires that the advocates of this Bill should draw a clear line of distinction, by showing wherefore one man should be debarred from a privilege which is claimed for two men, though in both cases there may be but one capital.

Before quitting the specific proposals of this Bill, it may be noticed, that its framers have disregarded the recommendations of the Law Amendment Society. That society has recommended that the capital, no doubt the whole capital, should be paid up, though how that is to be ascertained is not very obvious. No portion of the capital may be withdrawn, though profits may be paid out, and the special partner may not sign the firm, make contracts, or engage or dismiss servants. None of these securities against abuse are to be found in this Bill. It may be said that those who object to this Bill should do so on special grounds, but that no general argument against limited liability is admissible, seeing that principle has been already adopted by the Legislature. It should be borne in mind that the present proposal is of a very comprehensive character, embracing all partnerships of whatever kind, and seeking to introduce a principle hitherto untried save in special and exceptional cases. It is therefore not only quite fair, but necessary to argue the question in all its bearings. In taking that course we cannot pass over those arguments which are relied upon in support of the principle. In the first place, it is said that limited partnerships would tend to utilize capital and bring forward those dormant stores which timid men will not employ in trade exposed to the risks of the present law. But that argument is of little weight in a country like this, where capital is not only abundant, but in excess. In various foreign countries there may have been a necessity for stimulating the application of capital to trade. Commerce was a sickly plant, and there was no confidence in her operations. It requited some limitation of possible loss to induce timid men to expose their property to what were held to be most formidable hazards. But among ourselves such a necessity has never been recognised. Capital has always been abundant for the legitimate objects of trade, and is now more abundant than ever. Let it not be supposed that it is necessary to develop the trade of the country; so far from that being required, a less rapid expansion and development might be-desirable in many departments. In all branches of trade the tendency not casual and variable, but normal and uniform is to overtrading. Take, as an instance, the great cotton industry of the north. If all the wheels of Lancashire were again revolving, the consuming power of the world, so far as it has been tested, would not suffice to take off the produce. Capital flows into the channels of trade with no feeble stream, and our policy at the moment seems to be to restrain rather than stimulate the supply.

Another argument for this Bill is addressed to our compassion and generosity. It is said that young men of character and ability, as well as inventors in the arts, would find patrons willing to assist them with limited capital who do not find such supporters under the existing law. The argument is more specious than real. At no time since Britain was a trading country has there been a greater demand for the talents and energies of qualified young men, nor was there ever a greater certainty that such qualities would meet a due reward. No doubt, ardent youths, unwilling to achieve success in the old paths of industry and patience, might at an earlier period enter on the responsibilities of business. But it is most questionable whether the public benefit would be promoted by such a change. The weak point in limited partnerships is, that they encourage rash and speculative trading, and for such enterprises young men, of all others, are the least qualified. The great and most important objection to this Bill is, that it proceeds upon a principle utterly subversive of the law of the country, recognised in innumerable decisions and enforced for many centuries, that every man shall be liable to pay his debts in full. It is said, indeed, by speculative writers, that unlimited liability for debt is not founded on any principle of law, but has been based on the dicta of the Judges. It is needless to inquire into a matter so little practical, as there cannot be any doubt that the English law for centuries has made a debtor liable for his whole debts both in purse and person. But especially is it just that there should be full liability for partnership debts. These are contracted for the benefit of all the co-partners, and thence there arises an equitable obligation that they should be discharged by the joint means and property of all. But while equity clearly points to all the participants or expectants of gain as bound to meet loss, the same principle of equity refuses to sanction any right to devolve such loss on creditors, or, what is the same thing, on the general public. Limited liability is most inequitable in this respect. Lord Overstone, in his paper on limited liability, anno 1837, most justly says— In the case of the insolvency of a concern, it removes a portion of the loss, which must be borne by some party, from those who have voluntarily engaged in the concern, and who have had the means of watching and controlling its progress, and who would have been the sole participators in the benefits of its success; for the purpose of throwing it upon those who have had no means of insight into the state of the concern, nor power over its management, and no share in its advantages. If commerce could be carried on without loss, there would be no harm in limited liability, but occasional loss being as certain a condition of trade as average gain, why should those who derive the profit not bear the loss? And seeing losses must occur, there can be no advantage in shifting them from the shoulders of the rich to those of the poor; for it may be assumed that poor and struggling tradesmen, compelled by the necessities of their position to give credit and run imprudent risks, will generally be the creditors of limited companies. But I would ask further, where is the equity to merchants as a class in thus sanctioning an invasion of their proper domain by an array of outside competitors? The lawyer or the physician would not like his gains to be shared by any other. His long training, his intellectual acquirements, are all his own. But in the case of the merchant or trader, will it be said that there is no peculiar training, no special aptitudes— the result of labour and effort, requiring powers as distinctive as any other profession, and which only those trained in that school usually possess? Where, then, is the equity of opening up the counting-house or the factory to non-mercantile adventurers? By all means let those become traders, but let them run the risk of trade. The law is not bound to place them in a position for which they are not fitted, and secured by protection which involves injustice to others.

The worst result of limited partnerships will be found to consist in the wholesale immunity which they afford from the legal consequences of debt. It has been said, these companies will tend to the establishment of a system of cash payments, and the abandonment of credit. There can be no greater delusion. Whether we argue on theory or facts, we shall find the very opposite result to be established. Such companies, in their very nature, imply a system of credit. Where there is no debt there is no liability, and no need for legal protection. And, in point of fact, we know that such companies ask and obtain credit with the utmost facility. If the Returns before the House are consulted, there will be found ample proof of the extent to which they have obtained credit, as well as how they have abused it. Doubtless, prudent dealers should refuse to give credit to those who avow that they will be influenced by no honourable considerations and no principles of justice, but that under the shelter of the law they will defraud their creditors. Unfortunately, such is the struggle for business among competing tradesmen, and such are the necessities of dealers to obtain orders, that the greatest risks are eagerly run. Nor need it be wondered at that these companies are favourably regarded. It is part of the system to present an array of respectable names—men known to be rich, and deemed to be prudent, even from the very circumstance that they are trading with limited liability. But, let us look to the facts. On the face of the Returns it is made clear that one-third of these companies have become bankrupt, and left their creditors unpaid. If such was the case under the restricted application of the principle as it has existed since 1855, it may well be anticipated that there will be a fearful increase of insolvency, mismanagement, and swindling, under the proposed extension of the system. Again, the tendency of limited partnerships is to foster excessive and illegitimate competition in trade. No traders are so utterly reckless as those who have nothing to lose. And it would be found that in proportion as risk was limited, there would be a proportionate disregard of prudence and calculation. Wild and rash speculations would be encouraged by the knowledge that failure involved no irretrievable, perhaps no serious result. Under this new law we should see arise innumerable co-partnerships competing with each other in total disregard of consequences, actuated by trade jealousies and rivalships, and rushing on in a career hurtful to themselves, ruinous to others, and destructive of all honest and legitimate trade. Surely, the advocates of this Bill do not wish to see British commerce degraded by this desperate gambling. But we have abundant evidence scattered through the whole of the blue-book, and especially contained in the answers to the queries of the Commissioners, that limited companies, from their very nature, tend to these results. If an example on a large scale were wanted of their needless expenditure and mismanagement, none better can be found than the history of British railways. If the directors of railways had been spending their own money, or even that of their shareholders, unprotected by Acts of Parliament, they never would have gone to such excess in extensions, competing schemes, Parliamentary contests, and legal costs. The hon. Member for Buckingham has borne testimony to the competition of limited companies, and has also instanced railways in confirmation of his views (page 104). It thus appears that we are asked, under pretence of promoting commerce, to adopt a system which will drive prudent merchants from the field. Lastly, this Bill would give a fatal blow to mercantile character and morality. It has been held the glory of a merchant to meet all his engagements with scrupulous honour. I have heard in this House, on more than one occasion, when some exceptional instance of an opposite kind had startled the public mind, language used which seemed to imply that there had been an abandonment of those old principles and traditions which in by-gone times have raised so high the character of the British merchant. Such statements are rash and groundless. No one can know the interior working of that great system of mutual confidence and honour which constitutes British trade, the tens of thousands in value which change hands by a word or a sign, and the security with which, based on well-known forms and customs, the daily routine of affairs proceeds, but must admit that even the lawyer's parchments do not bind faster than the merchant's word. But this state of things may change; and should this Bill become law, it probably will change. It is proposed to make bankruptcy no longer disgraceful. Under this proposed law a capitalist will not content himself with one adventure. We cannot doubt, from what we know of the energy and enter- prise of our national character, that we shall find merchants engaged as limited partners in various companies. But no one can expect to be equally successful in all his undertakings. He may be bankrupt in one concern and solvent in another. In what position will that man stand, not legally, for that unfortunately is defined by this Bill, but morally? Will he have incurred the greatest stain which can soil the name of a merchant, or under the demoralizing influence of this new law will he be a bankrupt and not be ashamed? It is only the other day that we have abolished imprisonment for debt. If we go farther back, we shall find the bankrupt treated as a Pariah, and (at least in the. North) clothed in a debtor's garment, of which he could not divest himself until he had purged the stain of debt, and become entitled to take his place among honourable men. I have not a word to say in favour of such obsolete barbarisms, but there is no reason why we should go to the opposite extreme, by enacting that bankruptcy shall be no longer a stain, and bankrupts incur no social disqualification. There is a law in the statute book, 52 Geo. III., c. 144, which requires a new writ to be issued in lieu of any bankrupt who may have a seat in this House, and that law has not been repealed by any subsequent amending or consolidating Acts. The position of an insolvent who has failed to meet his engagements in one or many limited companies, will be peculiar and anomalous in regard to this law. What course yon, Sir, might think it necessary to follow in fulfilment of your duty, I will not pretend to say; but this I think I may say, that there should be no limited liability resting on the Members of this House to maintain its honour and its dignity, and these will be best defended by rejecting this Bill. I hope to learn from Her Majesty's Government that they are prepared to adopt that course.

Amendment proposed, to leave out the word "now," and at the end of the Question to add the words "upon this day six months."

Question proposed, "That the word 'now' stand part of the Question."

MR. GREGSON

said, he rose to second the Amendment. He was opposed to the principle of limited liability, and went upon the old English principle, that if a man contracted a debt, he ought to be made to pay, unless he became insolvent. The Act of last Session only passed in August, and came into operation in November, and they ought to have experience of the working of that Act before they legislated further in the same direction. He did not see why the same principles should not be applied to joint-stock companies that were applied to railway companies, in respect to which there was a standing order of the House, that they should not borrow any money till 50 per cent of the capital was paid up, and then not move than one-third of the capital.

MR. MILNER GIBSON

said, the hon. Gentleman who had moved the rejection of the Bill, and the hon. Gentleman who had seconded that Motion, had both argued against the general principle of limited liability. Now, he thought he was entitled to assume that the general principle of limited liability had been adopted by the House, and it was not necessary, in dealing with the question before them, to argue that general principle. What they had to consider was how the hon. Gentleman who had charge of the Bill proposed to apply that general principle to this particular measure, and what were the sale guards and provisions he had introduced. With regard to the various provisions contained in the Bill, as the hon. Member proposed to refer it to a Select Committee it was hardly necessary to go into the details. He agreed in the general proposition, that a man ought to be able, with proper safeguards, to advance money on the condition that his interest should depend upon the profits, without being liable to be considered a partner. And workmen, he thought, ought to be allowed to be paid by sharing in the profits of their employer, without being considered partners. But he agreed with the hon. Member (Mr. Buchanan), that if a person were to be allowed to share in the profits of a concern without being subject to unlimited liability, he ought to take no share in the management, and in that respect be thought the Bill was defective. He believed that was the principle of the French law as to partnerships en commandite. There were some provisions in the Bill which he wished to guard himself from being supposed to sanction. The hon. Member wished to have all disputes between partners terminated by compulsory arbitration. He (Mr. Milner Gibson) thought they should be allowed to decide matters for themselves. He strongly objected to that part of the Bill which provided for the registration of all firms in the United Kingdom carrying on business under any other designation that the full Christian and surname of every one of the partners. The registration of all those firms would be a very formidable affair. The present joint-stock companies office in connection with the Board of Trade would be totally inadequate; and if to carry out that provision it was necessary to have a central office in London, with local officers all over the country, it would require an office in London as large as the Bank of England. At the same time, he thought there were provisions in the Bill well worthy of consideration, and consistent with the general principle of limited liability already adopted by the Legislature. Therefore, he would vote for the second reading, the more especially as the hon. Gentleman proposed to refer the Bill to a Select Committee.

MR. MALINS

said, that he could not see any principle on which, if they allowed limited liability to seven or eight, they could deny it to two or three. [An hon. MEMBER: Or one.] He denied that the principle of limited liability had signally failed. On the contrary, he contended, as a practical man, that it had been a signal success. The proof was the almost invariable practice of starting new companies on that principle. It was a great benefit that people could put a certain sum in a concern; and even if that was lost, that they need not necessarily be ruined. But it was said that the creditors were defrauded. That, however, was a great mistake; all that the new law had done was to teach people prudence and foresight. He denied, also, that the limited liability companies had all failed. Many of them had achieved a brilliant success, and some of them would never have been started at all on any other principle. Would any one, for example, have ever thought of projecting the splendid hotels which had lately been set on foot if the law had not been altered? It was not necessary to discuss the details of the Bill, because it was to be sent before a Select Committee, but he greatly approved of the proposal to enable servants to be paid by a percentage without being thereby made partners, or to allow persons lending money to be paid by a fluctuating interest without leading to the same result. He should cordially support the second reading.

MR. T. BARING

said, that the old principle upon which English commerce had been carried on was, that every man who shared the profits should also be answerable for the losses of the trading; and if there were concerns which required an accumulation of capital beyond the means of individuals, a Royal Charter would confer limited liability. So far was the principle of limited liability from leading to the exercise of greater caution, that it would diminish care and must lead to inflated speculation. Under the old system the trader was required to look to his liabilities; under the Bill that responsibility was to be thrown upon the creditor. It was under the old system that the reputation, honour, and credit of the English merchant had grown up, and good reason ought to be shown before it was altered. Unlimited liability had hitherto been done away with only with regard to large companies; and its abolition with regard to every transaction and every concern, however small, must introduce great distrust into commercial transactions, and would probably lead to great losses, calamities, and disasters. If he had wanted reasons for opposing the Bill, he should have found them in the speech of the right hon. Gentleman the President of the Board of Trade, whose remarks were sufficient to show that this was a most crude, undigested, and unsatisfactory measure. He objected to almost every clause of the Bill, and only justified his vote for the second reading on the ground that something might be made of it in Committee. That, however, was not the way to treat a subject of such grave importance. The last Limited Liability Bill which was presented to the House was introduced by the Government, and yet it was altered at least five or six times; and if the Bill before them ought to have been brought in at all, it ought to have appeared under similar auspices. The House ought not to alter the whole foundation of commercial security on the Motion of a private Member, without the consideration and without the sanction of the Government. Without such sanction the Bill ought not even to go to a Select Committee. Select Committees might very well deal with the details of measures upon the principle of which the House was agreed, but in this case the details involved the whole principle of the Bill. The reason why the system of commandite was adopted in France was, that it was impossible to raise sufficient capital to carry on the trade of the country without securing men against complete liability. In this country, however, no such necessity existed. The House ough to hesitate before it moved one straw which would shake the commercial credit of England; and although he did not question the good intention with which this Bill had been introduced, he doubted whether it would facilitate sound and honest trade, and he should vote against the second reading.

MR. MILNER GIBSON

explained that he had expressed his concurrence in two of the main principles of the Bill—that persons might advance money to a trading concern, receiving by way of interest a share of the profits, without being constituted partners, and that servants might under similar conditions be paid by a share of such profits. He thought that these provisions might be accompanied by sufficient safeguards, and therefore felt himself at liberty to vote for the second reading of the Bill.

MR. BAZLEY

said, he looked upon limited liability as a great evil. It was true that the principle was recognised in the case of joint-stock companies, but for individuals and small associations of half-a-dozen persons the principle was untried, and would, in his opinion, be most injurious to sound trade in this country. He should therefore give his hearty support to the Amendment.

SIR HUGH CAIRNS

said, that as the law stood there was not the least practical difficulty in remunerating clerks by a salary proportioned to profits without incurring the risk of partnership, so that no amendment of the law was necessary in that respect. As to the proposal that persons should be allowed to lend money and receive a share of profits without thereby becoming partners, he recollected that in 1855–6 an attempt was made to provide for loans such as the Bill contemplated; but, after full discussion, everybody who considered the subject came to the conclusion that the principle of limited liability might be safely introduced in respect of companies, but not of persons advancing loans. The company was required to announce itself as formed on the principle of limited liability, and those who dealt with it were thus put on their guard, and were enabled to ascertain from the registry, if they thought fit, what was the capital of the concern and who were liable. With regard to private partnerships, however, it was impossible to introduce any system of that kind. Suppose a firm established in Manchester or Glasgow, or in places more remote, how were the persons dealing with it to know that the firm was kept afloat by loans from persons who were not partners? How could persons, before entering into transactions with such a firm, send up to London and search the register for information? Then, again, it was not possible that, the Joint-Stock Company's Office could register every petty loan made to firms throughout the kingdom. That office could not perform the work. The Bill contained no provisions by which the public would be put on their guard and informed who were lending money upon the principle of limited liability. He regretted that the Board of Trade, to whom the mercantile public naturally looked for protection, were willing to allow a measure of such grave importance to be scrambled for in a Select Committee, instead of introducing it, if they really approved its principle, upon their own responsibility.

THE SOLICITOR GENERAL

said, that the opponents of this measure seemed to have addressed themselves to the defects of details much more than to the question whether the principle involved was a sound one. That, as he understood, was the point to be determined at that moment; for the mere fact that a Bill contained clauses requiring amendment, or that additional safeguards were necessary, afforded no reason why the Bill should not be read a second time. He agreed that private partnerships on the principle of limited liability should be ear-marked as such, and that that fact should appear in all their notices; but the want of such a provision was a matter of detail which might easily be supplied when the Bill was in Committee. The question before the House was whether an amendment of the law of private partnerships, as regarded that point, was not needed. The House had been told of a distinction so fine that even the framer of the Bill had failed to grasp it. The language of the clause assumed the law to be what it was not—assumed that a clerk would be liable as a partner when he would not; while the marginal note put the matter on its true footing. If a clerk were paid in proportion to profits, and received a salary in the ratio of profits, he was not a partner; but if he received a share of profits, he was liable as a partner. Again, a man might furnish the whole capital of a trading partnership, and take securities for repayment; and if he stipulated for 15 or 20 per cent of interest, instead of a moderate share of profits, he was not a partner. Did the hon. Member for Huntingdon (Mr. T. Baring) really think that the mercantile morality of the country depended upon the maintenance of such a state of the law? He thought that a Bill which got rid of those absurd and irrational distinctions would be of real service to the commercial community, and the requisite safeguards which were omitted might easily be supplied. It was requisite that persons dealing with these companies should know upon what principle they were based, and it was also necessary that those who furnished the capital should not be at liberty suddenly to withdraw it. But to get rid of the anomalies he had mentioned was not a task unworthy of this House, nor did the Government think it right to discourage private Members in the duty which they had taken upon themselves. It seemed to the Government, therefore, right to assent to the second reading of the Bill, while they hoped that it would be greatly improved in Committee, and while they by no means bound themselves to support its passing into law in its present shape.

MR. WHITESIDE

thought his hon. and learned Friend who had just sat down, had rather offered an apology for the Bill than adduced sound arguments in favour of its principle. He should, he might add, like to know whether it was beneath the dignity of the Board of Trade to take so important a question as that with which the Bill proposed to deal under its consideration, and signalize the present humdrum Session by introducing with respect to it a measure worthy the serious attention of Parliament. As for the measure under discussion, he would appeal to his hon. and learned Friend the Solicitor General, to say whether he would put his name to it without having the slightest doubt as to the answer which he should receive. If, he should like to know, John Smith commenced trade, having borrowed £100,000 from the hon. Member for Birmingham, while he was to be paid by a share in the profits, how were the general public to become aware that John Smith had no capital? His hon. and learned Friend seemed to think everything in the Bill was a matter of detail, but he appeared to forget that the value of such a measure consisted in the way in which its details were worked out. If each Gentleman who had spoken had pointed out a radical defect in the Bill, it was in vain for the right hon. President of the Board of Trade to say that something could be made of it in Committee. That was not a rational and scientific mode of law-making. He hoped the good sense of the House would remit the matter to the Board of Trade, and that that Board would signalize itself for the Session by doing something useful.

MR. JACKSON

said, he should oppose the Bill, as it was in favour of the capitalist, and not in favour of the trader and man of industry. The tendency of the Bill was to uproot that principle which gave England its greatness—the credit which one man gave to another. He believed that credit would cease if the Bill were to pass info a law. Had it not been for the assistance given to him when a young man, he would never in all probability have become a Member of that House. It had, he might add, been his practice to bestow upon those in his employ a portion of his profits as an inducement to exertion, but he at the same time never supposed that he was thereby making them his partners.

MR. SEELY

said, he admitted that great capitalists might be injured by the operations of the Bill, but he thought it would tend to benefit the public at large. It would not injure the prospects of young men, as the hon. Gentleman who spoke last seemed to suppose. He should support the Bill.

MR. ALDERMAN SIDNEY

said, he was at a loss to understand why the Bill had been introduced, as he believed it to be fraught with considerable danger and inconvenience; while the existing law did not in his opinion, stand in need of amendment in the direction which it proposed.

Question put.

The House divided:—Ayes 56; Noes 39: Majority 17.

Main Question put, and agreed to.

Bill read 2^o, and committed for Tomorrow.