31. Clearly the benefits which capitalists might derive from limited liability in partnership matters could not be obtained by a relaxation of the usury laws, still less those which might accrue to the public at large, since the lender at usurious interest (without using the word invidiously) would rank as an ordinary creditor, and diminish by so much the business credit of the undertaking; whereas the commandite partner adds to it.

The allowing loans at a rate of interest proportioned to the profits, with a postponement of the claim to that of ordinary business creditors, would indeed secure most of the benefits of commandite alone, not by any means of limited liability for all. Even, however, as to this, believing as I do that the functions of the commanditaires, so far as they could be exercised with closed doors, might be greatly and wisely extended, and in particular that a power should be secured to them (as suggested by Mr. Duncan, in his evidence before the Partnership Committee) of removing the managing partners in urgent cases,I have grown to think that commandite cannot be exactly identified with a loan at a rate of interest proportioned to profits, and postponed as to repayment to the claims of the ordinary creditor, but is preferable in any respect to the latter. See also my answer to query 28.

LAST QUERY. I hardly know what to add, beyond the following brief answers which have suggested themselves to me to the stock objections against limited liability. I. Qui sentit commodum, sentire debet et onus. (Mr. Hodgkin.)

Answer. Apply this maxim as between tenant for life and remainderman. Has the former or have his creditors power to come upon the latter for the expenses of any permanent improvements? Apply it as between leaseholder and reversioner in a building lease. Is the latter called upon at the end of the term to pay the tenant's building debts? II. Removal of loss from those who voluntarily engage, have the means of watching and controlling, and would have solely participated in success, to throw it upon those who have no insight into the business, no power of management, and no share in advantages. (Lord Overstone.)

Answer. This applies almost exactly to the relations of director and shareholder in a registered company, and goes almost the full length of a claim for commandite. The directors engage involuntarily; the shareholders often involuntarily, as in the case of husbands of female shareholders, executors, administrators, &c. The directors have the absolute means of watching and controlling, and the shareholders are excluded by law from the management. The directors have, moreover, at least the first profit, since their emoluments are a prior charge to dividends, not to speak of patronage. Even as between the company and strangers, the engagement with the creditor is quite voluntary on his part, generally involuntary as respects each particular contract on the part of the shareholders as entered into behind their backs by the directors. Again: the creditor, dealing with the actual commercial body, has often far greater means of watching the management than a mere shareholder. And lastly, it is contrary to political economy to suppose that he will have entered into any engagement without expecting some share of advantage from it.

III. Partners may embark a very small share and be very slightly injured; contra with creditors. (Lord Overstone.)

Answer. Or the exact reverse may be the case. The partners may have embarked their whole fortunes and the creditors a very small part.

IV. General rule of commercial transactions, that the individual is liable to the full extent of his means for engagements entered into by himself, or on his behalf, or jointly with others. (Mr. T. Tooke.)

be

Answer. Quite the contrary. A man constantly limits the amount for which he engages. He guarantees another to the extent of 100l., 500l., 1,000l., and is then responsible no further, though he may have millions at command. And his guarantee may limited not only as to amount, but as to the nature of the engagements entered into. He cannot be bound by others, except to such extent as they are authorised to contract for him. Would Messrs. Green be liable if a light porter in their employ, sent out to buy a ball of twine, were to contract for the purchase of an East Indiaman? The very responsibility of partners for each other is limited in many ways. Individual partners cannot bind the firm by deed, except by a special power; nor by warrant of attorney under seal, if without the knowledge and consent of the others; nor by submission to arbitration. In joint stock companies, even before the Registration Act, a partner could not bind the company by bill or note without special authority. And a very large portion of the Registration Act is occupied with defining the various cases and modes in which, and in which alone, the directors and other officers can lawfully engage on behalf of their co-partners and make them liable, whilst the great bulk of the partners, the mere shareholders, are expressly debarred from so engaging and binding others. So that limitation of liability is even now a question of degree only; and it is distinctly not true that partners are liable to the full extent of their means for all engagements entered into on their behalf, or jointly with others. Whilst, if they take care to put a clause in their contracts, that the creditor is to look to the funds of the partnership or company only, and not to themselves, they are not even liable for their own engagements. V. Limited liability contrary to the mercantile notion of partnership. Answer. In England I suppose, since it clearly is not over half the civilised world. But even here, it is not in the least contrary to the idea, but to the practice only. The

J. M. Ludlow,

J. M. Ludlow.

mercantile notion of partnership is that of an ideal person called a firm, employing as its general agents persons called partners, who guarantee its solvency. Whether that guarantee and that agency are limited or unlimited is a mere matter of form, and affects in nowise the idea itself.

VI. False credit which limited liability is likely to obtain. (Mr. J. Horsley Palmer, Mr. Kirkman Finlay, Mr. G. A. Wilde.)

Answer. See my reply to query 64 before the Committee on the Savings of the Middle and Working Classes, 1850. The false credit of a firm is really the credit given to the individual partners and not the firm itself. If persons dealing with a company, instead of looking to the way in which it is managed, look only to the individual fortunes of one or two partners who need not even be in the management: that is false partnership credit, and what unlimited liability tends inevitably to beget. If on the contrary people only look to the way in which the business is carried on, to the skill and prudence of those who couduct it: that is true credit, and it is precisely what limited liability would enforce. If persons are fools enough to trust a limited liability company beyond its deserts, merely because it numbers a few wealthy partners, who they know are not legally liable, the sooner they smart for it the better for their future prudence.

VII. Unlimited liability productive of caution.

Answer. It may make men cautious of entering into partnerships and companies, but not cautious when in it. Is a man cautious who assumes a liability ten or fifteen times greater than his fortunes? If cautious before, will not the feeling that he is mortgaged practically to his last shilling, tend to make him reckless? See however my previous answers, passim; and my evidence before the Savings &c. Committee of 1850.

VIII. Limited liability partnerships not likely to obtain the same credit as unlimited. Answer. If so, the false credit objection, No. VI. is disposed of. But every company obtaining limited liability by charter or Act of Parliament is too glad to blazon the fact of its incorporation abroad; and this can only be in part attributed to the moral guarantee of the preliminary scrutiny, since the oldest incorporated companies, such as the two corporations for insurance-the Royal Exchange and the Amicable,-invariably advertise the fact. Experience therefore seems to suggest a negative answer. And on general principles, does not the fact that the partners have determined to limit their liabilities, and not guarantee to the whole extent of their fortunes the acts of others, afford the ground of a truer credit than the opposite course of proceeding?

IX. Difficulties of guarding against fraud and intricate legislation. (Lord Overstone, &c.)

Every

Answer. They are great, in the direct proportion of the liability of members. lawyer knows that the short cut to facility of procedure as respects any company, board, society, &c., is incorporation, i. e. with limited liability. As respects trading bodies, for instance, the margin of litigation in this case is cut down to the unpaid subscriptions at most, if all are paid up, then to the assets only. In the case of unlimited liability, it stretches over the whole private fortunes of every shareholder.

X. Repeal of the usury laws, a substitute.

Answer. At most as regards the money lender, and not as regards the trade creditor. See answer to query 31, supra.

XI. No encouragement wanted for investment in trade; superabundant capital.

Answer. More a question of political economy than of law. Quære, however, as respects at least that trade on which so many millions of our population depend,-food-growing, to wit; and that field of investment which comprises more than one-fourth, I believe, of the total area of the British Isles,-Ireland.

Lastly. I would once more urge on the Commission, as I did on the Partnership Committee in 1851, the consideration of the effect of the Winding-up Acts, as showing the reckless trading hitherto practised in this country under unlimited liability, and the cost and difficulty of apportioning the losses contracted under it amongst the co-partners.

APPENDIX A.

Summary Clauses in the event of Execution or Enormous Loss.
"Of the Extraordinary Meetings."

"In case execution shall issue against the company at any time, or in case a loss of 751. per cent. on the subscribed capital for the time being shall be incurred at any time, it shall be incumbent upon the directors to call forthwith an extraordinary meeting, the notice of which shall be the same as that for a special meeting [i. e., specifying day, hour, place, and purpose], except that it need not be given more than three days before the proposed day of meeting.

"In case the directors shall fail in either of the events herein mentioned to call an extraordinary meeting within three days after a requisition in that behalf, signed by any one shareholder, shall have been left at the office, it shall be lawful for any one share

* The first idea of the clauses here given was suggested to me by Mr. E. W. Field.

holder to call an extraordinary meeting by advertisement, as for a special meeting, except that such advertisement need not give more than three days' previous notice of meeting.

"Any meeting at which it shall appear that a loss of 75l. per cent. on the subscribed capital shall have been incurred, or an execution issued against the company, becomes ipso facto an extraordinary meeting.

"There is no quorum for an extraordinary meeting, but it may by a simple majority remove all or any of the officers of the company, and elect others in their stead, and may dissolve the company; nor do its acts in that behalf require confirmation by any other meeting.

(The term "special meeting," it will be observed, is in the form from which the above clauses are taken, used to designate meetings called on special notice, such as are often called, "extraordinary meetings;" the latter term being reserved for meetings of a still more unusual character.)

J. M. Ludlow

APPENDIX B.

Heads of Bill "To amend an Act of the Parliament of Ireland, intituled An Act to promote Trade and Manufacture by regulating and encouraging Partnerships.' Recites Anonymous Partnership Act, 21 and 22 Geo. 3. c. 46, & Amendment Act. That owing to imperfection of various of the provisions in said Act, the same had not been made extensively available.

That in present state of Ireland it is more than usually desirable to promote trade and manufacture, as well as the cultivation of the land, by facilitating the employment of capital in that country, and it is therefore expedient to amend the said Act.

Enacts 1. Repeals so much of said Act as relates to limitation of joint stock, period of formation, time of payment or tender of contributions of anonymous partners, and proportion of profits divisible amongst them, or to be employed towards increasing the joint stock; and so much as requires accounts to be signed by two-thirds of anonymous partners or their attorneys; and so much as avoids dealings between anonymous partners, &c., and acting partners, &c., after execution of partnership deed; and so much as relates to acting partners keeping account of private dealings, &c., or making out inventory of private effects, and to any forfeiture, remedy, &c. of anonymous partners for default thereof; and so much as provides that no partnership of bankers or discounters of money shall be within Act (see Sections 4, 6, 5, 14, 17, 18, of An. P. A.)

2. Power to any number of persons to form partnership by deed certified as after mentioned for any number of years, and for any purpose of trade, commerce, or manufac-. ture, or for working mines or quarries, or executing navigations, &c., or farming, or cultivating waste or other lands, or other purpose of profit, upon any amount of capital, to be contributed by such investments and in such time and manner as deed may provide.

3. Power to existing partnerships by deed certified to bring themselves within Act. 4. Deeds of settlement to provide for execution of covenants by shareholders, division of capital into shares, payment of unpaid instalments, holding of general meetings at least once a year at which any anonymous partner shall have a vote, appointment of auditors by anonymous partners, and remuneration of auditors keeping, auditing, and passing accounts, reference of disputes to arbitration, and such other purposes as certifying barrister shall require from time to time.

5. Requisites of deeds of existing anonymous partnership seeking to bring itself within Act.

6. Partnerships not to enjoy benefits of Act till certified by barrister appointed by Chief Justice of Common Pleas in Ireland (or Lord Lieutenant); but with respect to all previous dealings to be responsible in solido, unless specially provided.

7. Notice of intention to apply for certificate to be advertised, with power to barrister to direct further advertisements.

8. Documents to be laid beforebarrister on applying for certificate; deed signed by all partners, acting or anonymous; bye-laws (if any), signed by all acting partners; statement, signed by all acting partners, of capital paid up, not being less than 10l. per cent. of amount intended to be issued for the time being, and which shall be entirely subscribed before application; and if partnership has commenced business, copy of last balance-sheet, made to within seven days of application; with such other statements as barrister may from time to time require.

9. Barrister to examine, and certify if satisfied.

10. On barrister refusing to certify, appeal to Court of Common Pleas in Ireland, on statement made out in writing and read over to parties (as in Registration of Voters Act, 6 and 7 Vict. c. 18. s. 42).

11. Court of Common Pleas may direct barrister to certify, and may direct modifications.

12. When deed certified, to be registered, and notice given by advertisement, and filing with secretary of grand jury for counties where offices situate or works carried on.

J. M. Ludlow.

Notice to specify, first, time; second, principal office, and other offices within county; third, names, addresses, and descriptions of all acting partners, and whether all or which may sign and contract for the firm; fourth, capital subscribed and paid up; fifth, loans authorised, and how much raised; sixth, date of certificate, and intended duration of partnership; seventh, date of registry; eighth, such other particulars as barrister may require.

13. Until any share paid up, transfers, &c. to be registered, and original subscriber or last registered holder liable till registration of transfer, &c.

14. Withdrawals, appointments, &c. of acting partners to be certified, registered, and notified.

15. Changes of firm to be certified, registered, and notified.

16. After certificate, supplemental deeds of settlement to be allowed by barrister, who may direct them to be registered and notified.

17. Dissolution of partnership otherwise than by effluxion of time, to be registered and

notified.

18. Copies of every balance-sheet to be sent to barrister and to every partner.

19. Unless otherwise provided, acting partners may withdraw with consent of majority of anonymous partners.

20. Unless otherwise provided, anonymous partners may appoint other acting partners in place of those deceased, withdrawing, bankrupt, insolvent, lunatic, or otherwise disqua

lified under deed.

21. Firm need not contain names of all acting partners, and may be altered.

22. Acting partners to be liable for three years from registration of their ceasing to be such.

23. Partnerships not dissolved, nor any contract affected by death, &c. of acting partner, or change of firm.

24. Partnerships to sue and be sued in the name of the firm.

25. Judgments, &c. to take effect against acting partners, and against anonymous partners, to extent of unpaid subscriptions.

26. Anonymous partners who have fully paid up, may require quietus to be registered. 27. In proceedings between acting and anonymous partners, acting partners to sue and be sued in name of firm.

28. On change of firm, how pending suits to be carried on.

29. Relations of acting partners, inter se, to be those of ordinary partners.

30. Anonymous partner interfering to be liable as acting partner.

31. Acting partners may deal with anonymous.

32. Penalty for omitting, falsifying, &c. returns.

33. Deeds of settlement and other instruments to be filed bookwise, and in continuous file; one file to each partnership.

34. Deeds, &c. to be registered at length.

35. Power to hold land without licence in mortmain (superfluous).

36. Power to take assignments of and hold patents for inventions (probably superfluous also, at present).

37. No dividend to be made out of capital.

38. Where loss of 50l. per cent. on paid-up capital incurred, meeting to be held to consider dissolution.

39. Where loss of 751. per cent. incurred, any one partner may summon meeting for dissolution, and such meeting may dissolve company.

40. Partnerships under Act to be within Winding-up Acts.

41. Services by post.

42. Partnership books to be evidence.

43. Advertisements in Dublin Gazette to be evidence.

44. Courts to take judicial notice of barrister's signature; and forgery thereof to be felony.

45. Omission of no form under Act can be taken advantage of by partners, as against third parties.

46. Partnership under Act not to require registration as joint stock companies. 47. Court of Common Pleas in Ireland to fix barrister's fees and fees for registration. 48. Court of Common Pleas to provide forms of registry, and to make rules and orders for carrying out Act.

49. Barrister may be arbitrator under deed of settlement.

50. Barrister may examine on oath; and false swearing perjury.

51. Interpretation.

(Some of the Registration Forms might be annexed in Schedule.)

No. 37. ALEXANDER NICOL, Dean of Guild of Aberdeen.-26th December 1853.

1. Being of opinion that the unlimited responsibility of partners for partnership debts, should be modified, see answer to query No. 2.

2. I believe that unlimited responsibility in all partnerships such as now generally obtains, tends very much to diminish legitimate business; the fear induced by losses austained in joint stock companies, such as banks, insurance companies, and other joint stock partnerships, is daily evidenced by partners advertising that they have ceased to have connexion with them, having purposely sold their interest in many cases, while trustees almost invariably do it when the effects of deceased partners are disposed of: if people knew the utmost extent to which they were liable in such partnerships the same fear could not exist.

3. In certain partnerships only

(1.) I am not prepared to say that limited responsibility should apply to ordinary partnerships, unless placed under state control, certainly not to private ones.

I do not think it would permanently affect individual or small partnerships with unlimited liability, because I do not think that any company can successfully compete with private enterprise entirely unfettered.

(2.) I think it would be most applicable to them under certain restrictions.

(3.) I do not think that it should be limited; but till it has been put in practice for some time, and till it is better understood by the public, I would prefer applying it to partnerships with a larger than more limited number of partners. I do not think that restriction should be placed on the amount of capital.

any

4. I think there would, and to guard against it, the names of the partners and the number of shares held by them should be advertised, and if practicable, a limit set to their liabilities-perhaps only publicity of accounts.

5. I am of opinion that they would.

6. Presuming that these companies would be got up for legitimate purposes, I am not aware that there are any perils against which it would be necessary to guard partners, except to define the proportion of capital to be paid up before commencement, and the creditors by limiting the authorised liabilities of the co-partnership.

I do not think it is the province of the legislature to attempt to interfere for such a purpose. Parties, whether richer or poorer, embarking in co-partnery concerns should look out for themselves, and their risk will be all the less if they know the utmost they can lose.

7. It might have some such effect at first, as railways affected coach and steam-boat proprietors, but as I think such companies can only be beneficially carried out for themselves and the public for certain objects, though they might at first overstep those objects ultimately they would find their level; when they would assist private enterprise and become beneficial to it. The nature of such limited concerns should be publicly made known, so that every one dealing with them may understand it. They would have some advantages, and also some disadvantages, as compared with ordinary trading concerns, but each would have its own field without materially interfering with the other, unless (probably) beneficially; and even if the new class were found to bear hard on those concerns adhering to the present system, it would only be in the fair way of trade, and Parliament has no right to interfere to produce a different result.

Their very success would just be the proof of the advantages of the new system.

8. I am of opinion that unlimited liability leads to an undue amount of confidence on the part of money-lenders; and induces boards of uncontrolled directors to advance monies less prudently than they ought, from which cause no place has suffered more severely of late years than this; and the same may with equal truth be said of other joint stock companies.

I think the system is bad in the extreme, it places directors in the way of temptation, which few men can resist in times of excitement.

9. I am of opinion that it operates most injuriously on the interests of trade, as the reaction, when it takes place, is a source of infinite mischief to the public, and absolute ruin to individuals and their families.

10. They are very liable to suspend payment at seasons of commercial embarrassment, and after the position in which I know two of our native banks were placed not long since, I cannot look forward without much fear to what may some day happen.

Sir Robert Peel's last act regulating the issues of Scotch banks gave those now in existence a virtual monopoly, by prohibiting new banks from issuing their own notes: the consequence is that all the wealth accumulating in the country, the greater part of which is deposited in the few banks which exist, is thus placed at the disposal of the few men who are the directors—as for instance, one native bank here, which was begun in 1838 with a capital of 250,000l. This capital was subsequently increased in 1847 to 381,000l.; its shares which originally cost 51. each, were sold to the public at 77. 10s. per share; the revulsion consequent on the railway mania brought it to the verge of a stoppage, its shares fell to 27. 10s. and in 1851 they were declared by the directors worth only 27. 10s. each.

This bank now with a capital of only 191,000, issues its own notes to the extent of 153,000, while its deposit money has accumulated to the extent of one million sterling. No one can think without alarm of this state of things.

11. I am, and think such should only be permitted, when so granted by Parliament.

Alexander Nicol.