John Slagg. 4. As all companies with limited liability would no doubt carry on business to the extent of their subscribed capital, the public could not know the position of such concerns so as to judge of their solvency, or the probability of their being able to liquidate their liabilities. 5. Supposing a law of limited liability existed, and the names of the partners were published in the Gazette, with the amount of each partner's interest, the term of partnership, &c., the investigation of such matters would require too much time and trouble, and therefore, as previously stated, business would be preferred with those of established respectability and known property. 2. I do not think there should be any change in the present law, unless it be that all existing companies, such as railway and insurance companies, should be brought into the same position as other mercantile firms; and I think there can be no doubt that had each shareholder in such companies been liable to the extent of his property, there would not have been such reckless speculations and extravagance (leading to great loss to many parties), as have characterized the management of such companies. 3, 4. Are answered by the previous remarks. 5. Such partnerships would not be beneficial to the community, as there are always plenty of enterprising men of capital ready to enter into any project that affords a probability of a fair return on the required capital. 6. I do not know of any law existing, or that could be enacted, which would prevent the managing partners of a concern from disposing of the funds of the said company, and when the money is lost neither creditors nor partners could get it back. 7. Decidedly. It would raise up new concerns, create fictitious business, and cause loss both to the companies themselves, and to the responsible parties who trade on their own capital only. 8. Joint stock banks in this town (with one or two exceptions) have proved failures, in many instances from the business being in the hands of uncontrolled directors, who are mostly ignorant of the business of a banker, and who are tempted to save the shareholders by undue advances, and in many cases are induced to assist their personal friends. The above remarks apply to the wealthiest lists of shareholders known in Manchester. 9. So much so that many instances can be given where parties, without property, have been enabled to borrow from joint stock banks almost to an unlimited extent, and nearly in every case resulting in loss to the shareholder, and injuriously interfering with legitimate capital. 10. Joint stock banks are liable to suspend payments at such times, or at least after the loss of their whole capital to wind up the affairs of the bank. No doubt, if the list of shareholders is respectable, the public will be paid. I should say it is the knowledge that all the respectable shareholders are liable to the extent of their property, that induces others to take shares in a joint stock bank. 11. I think the Board of Trade should have no such power, and am decidedly of opinion that all public joint stock companies should be established on one common principle of unlimited liability of their shareholders. 12. I would not make any distinction between such companies, and am of opinion that for the security of the public, and to insure the prudent management of them, it is desirable that the responsibility of the shareholders should be unlimited. 13. I do not think that partnerships with limited liability are at all necessary or useful for the purpose of inducing persons of capital to employ their money in commercial pursuits, &c. On the contrary, I believe there are plenty of enterprising parties, with capital and sound commercial knowledge, who are ready to enter into any speculations offering a fair chance of profits; and an alteration in the law would deter such capitalists from risking their money against unresponsible parties. 14, 15, 16. From my previous remarks, it appears unnecessary to reply to these questions. 17. Such would certainly be the case, as the paid directors, servants, and others would run great risks to recover their positions, even if only to retain their situations and receive their salaries, and I do not see what remedy could be offered. 18, 19, 20, 21, 22, 23. I cannot offer an opinion on any of these questions. 24. I have not had any knowledge or experience of the working of the law of limited liability on the continent. Many firms "en commandite" were formed in Constantinople, and sent one of the partners to England, and nearly all these establishments proved failures, for the simple reason that they did not enjoy the same credit as, and therefore could not compete with, the houses established on the ordinary principle of unlimited responsibility. 25. I do not know of any such register. 26. I should say, without fear of contradiction, that in Manchester men of genius and enterprise can always find wealthy partners for any legitimate business, and, as a rule, such parties have no need of seeking to get up companies with limited liability to carry out their schemes. 27. The remuneration to such parties would be best secured by a small interest in the profits of the business, or a handsome salary, or both. 28. I do not know of any partnerships in trade where there is limited liability. There are several joint stock spinning concerns. Many joint stock establishments have been formed by the operatives, such as manufacturers, dyers, shopkeepers, &c. &c., and in all cases they have proved entire failures, consequently savings banks, building of cottages, or some other sure but less promising investment is certain in the end to be much the safest, as in such cases the parties can attend to their own business, which is always better than leaving it in the hands of uncontrolled directors. 29. My previous reply answers this. 30. I am not aware of the existence of any such establishments in England, but undoubtedly such is their tendency. 31. I think it would be dangerous to interfere with the existing state of matters. I presume, as the law now stands, any one lending money to a firm runs the same risk as any other creditor, and I think can charge more than five per cent. interest, and in case of bankruptcy would be entitled to a dividend. No doubt, in many cases, money would prove exceedingly useful to the parties borrowing, but as a rule, the public look with distrust upon parties working with borrowed capital, not knowing how soon such capital may have been repaid, unknown to the other creditors. No. 54.-JOSEPH OWEN, Corn Merchant. (Selected by the Chamber of Commerce of 1, 2. No need of change in the present state of the law in reference to private traders. In public or joint stock companies a limited extent of liabilities desirable, but a certain amount of paid-up capital to be certified, and published accounts strictly verified at given periods. 3. (1.) Unlimited liabilities in private affairs. (2.) Limited in banking and insurance companies as above, with certified paid-up capital. (3.) It would be desirable to limit the amount of shares. The number of shares issued would depend on the extent of capital required. Not necessary, as it would be self regulating. 4. The greatest care would be necessary to guard against the want of integrity of the manager and the supineness of directors. 5. In this country, where ample capital can be found for conducting ordinary business requiring 5000l., it would be injudicious to give encouragement to such establishments. 6. The greatest care would be requisite. 7. They would, in all probability. 8. A limited liability in a well managed business would give every needful confidence. 9. As above. 10. Well managed joint stock banks are not liable. Unlimited liability deters prudent persons from embarking their property as shareholders. 11. Of the three propositions, the latter. 12. The limited liability in all cases. 13. No. 14. Strictly limited to the amount subscribed for only. 15. There may have been cases of bad or improper management which the greatest care and publicity might prevent in future, but it is difficult to say how fraud can be prevented effectually. 16. It would be difficult to prevent transfers of shares when all calls are made; but the continuance of a company, when such liabilities of the proprietors are fulfilled, might be specially provided for. 17. On the entire of liabilities of shareholders being called in and paid, or shares forfeited, the responsibility of the existing proprietors should be answerable; but a publicity of the general affairs would be a great caution to the public in their transactions with such companies. 18. Under certain regulations such a course would be expedient. 19. All partners or shareholders should have equal liability in proportion to the amount of interest held. 20. Most assuredly yes. 21. Yes; under inspection of an official. Not prepared with a suggestion. 22. Yes. 23, 24, 25, and 26. No information on this point. 27. Generally, remuneration by way of salary is the best; but there are cases in which a different course is judicious. 28 and 29. The general result of co-operative retail shops has been disastrous, and productive of much fraud. Savings banks are good in principle, but have been found insecure Joseph Owen. Joseph Owen. to investors, and evil has resulted from indifference on the part of trustees, and want of integrity on the part of managers. 30. They have. 31. It would not be advisable to encourage such partnerships by any inducement to embark their capital at an excessive rate of interest. J. W. Farrer. No. 55.-JAMES WILLIAM FARRER. (Late a Master in Chancery.)—3d February 1854. 2. My opinion is that the unlimited responsibility of partners for partnership debts should be modified, that is, in the case of partnerships consisting of capitalists or shareholders exceeding a certain number, say six; I entertain this opinion under the belief that such partnerships cannot be formed without the shareholders incurring very great risks of frightful losses. It is notorious that these losses arise from the dishonest or unskilful conduct of directors and managers, and the credit which creditors culpably give. I use the word "culpably" as applicable to persons who deal with such partnerships, not upon faith in the proper management of them, but simply upon the responsibility of persons of substance whose names they find in the list of shareholders, and this they do when they know that the partnership is in a falling state. The mischievous consequences and ruin of hundreds-I might say thousands-from these partnerships ought to have effectually checked their formation, but this is not, I believe, the fact; credulity and confidence in names, with the hope of successful enterprise, still produces similar companies. Considering this class of partnership as a great social evil, I next submit my conviction that partnerships formed by the union of capitalists, including numerous small capitalists with limited liability, would be an important national benefit. It is the abuse of unlimited liability against which provision is wanted. The small capitalists want protection: that protection ought to be provided by the law; they should be protected in the furtherance of their legitimate undertakings against fraud and dishonesty, as in many other cases the laws surround the innocent against the evil-doings of the designing and unprincipled. For this purpose I would propose to adopt that which has been adopted in some charters under which operations are successfully carrying on-that every shareholder should be liable to the extent of twice the amount of his share; that he should pay up a large part of his share, and be liable to the extent of any unpaid part and another whole share. My impression in favour of a system of limited responsibility is founded upon the conviction that it is very desirable to multiply, as much as safely can be, companies of small capitalists, to bring into well-conducted joint stock undertakings as much capital as possible, to form such a system as may encourage operatives to invest capital in such companies, and thereby induce them to lay by a portion of their wages instead of spending all their earnings (after supporting their families) in self gratification. I should be glad to find operatives receiving wages in one establishment, whilst they were receiving profits as partners in a neighbouring one. I wish to see these institutions widely spread over the country rather than see commercial and manufacturing enterprise confined to great capitalists. After all the aid that can be given to these unions of small capitalists, the great capitalist trading on his own capital will still have great advantages over such competitors. 3. I would not make the limited responsibility applicable to private or ordinary partnerships, as well as to public or joint stock companies-I would apply it to banking and insurance companies. I should wish a plan of periodical inspection to be devised; perhaps inspectors might be chosen out of the general body of shareholders, not being directors or managers, or commissioners might be appointed by the Government, as the commissioners under the Income Tax Acts. I would make it applicable to partnerships composed of more than six persons, without any limitation as to capital, except that in no case would I allow shares in joint stock companies to be less than 50l. shares. 4. I think the principle "caveat creditor" sufficient protection to creditors of these companies. 7. I think that parties trading singly or in co-partnerships of few members in the ordinary way, subject to unlimited responsibility for debts, might be in a certain sense injured, that is, so far as regards the establishment of competing companies, but the public has a right to the benefit of such competition. The public would be the gainer. At this moment, it is said that some private partnerships are making excessively large profits, generally at the expense of the public. 8, 9, 10. I should answer the questions, under these numbers generally yes, observing that unlimited liability does operate to deter prudent persons of property from becoming shareholders in such banks or other public companies, yet still persons of property are found, I believe, to run the risks to which taking shares exposes them. 11. I am of opinion that all joint stock companies ought to be established on one common principle as to their capital. 12. I would make no distinction. 13. If partnerships could be formed with limited liability, they would, I think, be useful and beneficial to the partners and public. I do not think that they are necessary. 14. Well-studied provisions should be made to prevent capital being repaid under the name of profits. Bonâ fide inspection would prevent this abuse. 16. Shares should be transferable under proper regulations. 17. I think there is not much cause to fear the evils suggested by this question. 18. If duly qualified confidential inspectors or commissioners were appointed, as before suggested, it should be their duty to make a report to be laid before the shareholders, and in it they should express an opinion as to winding up or continuing the concern. 19. I think it desirable that some of the limited partners should be permitted to take part in the business of the firm. The number of such limited partners, the extent of their powers and their duties, would require much consideration. 20. My present inclination is in favour of registering the description and terms of the partnership, the names of the partners, and the sum for which each is liable. 21. Half yearly accounts should be made up and printed and distributed. These accounts should be rigorously examined by uninterested inspectors, and signed by them. 22. I do not see necessity for greater publicity of partnership terms than registration above referred to, and printed copies of the deed freely circulated, and to be had on application. The periodical reports might have printed on them an abstract of the principal clauses of the deed. 28. I think that many operatives who would be induced to save money for the purpose of becoming shareholders in a joint stock company, would not invest it in a savings bank. They would, however, probably invest in a savings bank with a view of enabling themselves to save sufficient to purchase shares in such company. Having received the commissioners' questions the beginning of this week with an intimation that it was wished that answers should be sent in at the end of it, I have very hastily given such answers as occur to me on the first consideration. Having conversed upon the subjects involved in some of the questions with Mr. Vansittart Neale, I requested him to put into writing the substance of his observations. This he complied with by sending me the paper which I enclose. He has since assented to my sending it to the Commissioners. J. W. Farrer. No. 55A.--Observations of Mr. VANSITTART NEALE, Barrister-at-Law, referred to by Vansittart Neal. Mr. FARRER. I think that the form of partnership which alone the English law allows individuals to form freely, where such partner is held liable to the whole amount of his property for the debts of the concern, is ill suited for partnerships like our joint stock companies, consisting of so large a number of partners that it is impossible for the great body of them to know how the business is being conducted. The great amount of credit which such partnerships may obtain, from the supposed greatness of the fund for paying their debts-that is to say, the united fortunes of all the shareholders-encourages the managers in incurring debts; and if the business fails, the payment of these debts often becomes a most heavy burden on the richer and more honest shareholders, who may be made to make good the deficiency arising from others being either too poor to pay their shares, or dishonestly shrewd enough to evade the doing so; while the creditors, though they may be paid at last, suffer from the long delay inseparable from the collecting in the funds out of which they are to be paid, by calls upon the shareholders to contribute, and lastly the costs inevitable in such a process add much to the pressure of the debts. These inconveniences are so seriously felt as materially to interfere with the formation of joint stock companies at the present time, or at least to prevent prudent and wealthy persons from embarking in them. 2. I consider that the existence of large companies for carrying on commercial enter prises of different kinds is a means of giving useful employment to large amounts of capital which would otherwise not be productively employed, and tends greatly to promote the wealth and prosperity of the country, and should be encouraged; and, therefore, the law should be so modified as to enable them to escape from the mischiefs mentioned in par. 1. 3. This modification, I consider, should be two-fold : (1.) Any number of persons should be allowed to form a company in which the liability of each shareholder is limited to the amount of capital which he engages to contribute, either by the original agreement or by any subsequent act, such as the issuing of bonds according to the provisions of the original agreement, due precautions being taken to insure that all persons with whom the company trades have notice of its constitution, and the amount of the capital, so that if they trust it unreasonably they may have nobody to blame but themselves, and further, that such a proportion of this capital as will prove the bona fides of the enterprise is paid up in money,-say at least one half, and that no dividends are made out of capital. The breach of any of these conditions should make all persons concurring in, or assenting to them, or who from their position in the company ought to have Vansittart Neale. known of them liable without limit, and the managers should also be liable without limit, if proved on a winding-up to have knowingly contracted debts without a reasonable probability of paying them out of the assets. Under these conditions I think that these companies would enjoy that sound credit which arises from the confidence of creditors in the way in which the business is conducted-not the unhealthy credit often given now to improperly managed businesses from the supposed wealth of this or that partner-and would do much good by checking the tendency to give such credit. (2.) Any person or firm should be at liberty to obtain advances by way of loan, entitling the lender to a share in the profits of the business, on condition that all such loans should be postponed to trade debts, and the payment should not be demandable without a notice say of twelve months-sufficiently long to allow of the borrower determining whether he will carry on the business and repay the loan, or wind it up. Such loans should not create any liability in the lender to the debts of the concern beyond the amount of the loan, unless he knowingly received dividends out of capital, and should not give any right to interfere in the management of the business, though they must necessarily be accompanied by a right to have the accounts audited at proper intervals by persons appointed by the lenders. 4. I think that the second of the last-mentioned provisions (which is analogous to the French law of commandite) would be needed if the first became law, to give to individual traders equal facilities with companies for obtaining capital on favourable terms, and thus put the two modes of commercial enterprise-namely, that in which the credit is given to a responsible individual or small firm, and that in which it is given to a company-on a similar footing. As a correlative, I would declare that all securities for loans to persons engaged in trade whereby it was sought to obtain any priority of payment over the trade debts out of the assets of the firm, or the capital of the trader embarked in the trade, should be void; and that all such loans should be postponed to the trade debts, wherever, in any shape, a greater interest than 5 per cent. was paid upon them, and should rank pari passu with these debts if the interest did not exceed 5 per cent.; and I would make notice for six or twelve months requisite before payment of any such loan could be required, except through a proceeding in bankruptcy. This provision would check a fraudulent practice, very common I fear now, of loans being made to traders at high rates of interest, and a judgment or other security being taken by the lender, under which he at any time can come in and sweep away the assets on the faith of which the trade has been carried on by the ordinary trade creditors. 5. The combined effect of these two modifications of the law would, I believe, remove one serious objection made to the law of partnership as it exists in France, namely, that it discourages men of capital from placing themselves at the head of large commercial enterprises founded on the joint contributions of numerous shareholders, since they have no other mode of limiting their liability, without first obtaining the sanction of the government, but by forming commandite partnerships, in which, if they take any part in the management, they become responsible without limit, whereas by refraining from taking any part in the management they can restrict their liability to their shares. Now, no partnerships are in their natural condition whenever the managers are not the persons who really have most interest in the business, or at all events when these persons cannot appoint the manager in whom they have confidence. in whom they have confidence. In a commandite business therefore in which the manager must from the nature of the case be irremovable, or removable only in cases of gross misconduct since to him the credit is given, the manager should be the person who has the greatest stake. The business should be substantially his business, and the commanditaires be persons who lend to him because they trust him, not persons who set him up as a mere agent to manage their affairs. Where this relation does not exist, the proper form for the business is that of the company with liability universally limited, so that no one shall be restrained by fear of consequences from taking part in the management, and that the best men interested may be put at the head; and there can, I think, be no doubt but that this form would be universally adopted in all truly joint stock enterprises, were it as easy to adopt it as to form commandite partnerships, leaving to the latter their proper fields open-namely, enterprises substantially carried on by some individual or firm with his or their own resources and such funds as other people may intrust to them. Commandite partnerships, I may observe, would be peculiarly applicable to the case of a manufacturer who should wish to interest his workmen in his business, and thus check the disposition to strikes while he retained the absolute management of it in his own hands. John Hollams. No. 56-JOHN HOLLAMS (of the firm of Messrs. Marten, Thomas, and Hollams, Solicitors, (2.) I am decidedly of opinion that the unlimited liability of partners for partnership debts should be modified. I conceive that the present system is not only a restriction |