H. Bellenden Ker. preparation of which I fortunately had your assistance. This however was afterwards amended and added to by Mr. Lloyd and several other gentlemen conversant with the details of Chancery practice. I have in another place pointed out the imperfections in the mode of preparing this Act; its cumbrous mass of provisions, all of which might have been better made by the judges of the Court of Chancery. But yet, notwithstanding the imperfections of its machinery, the Act, with the one amending it, (for some of its defects were soon discovered,) forms I believe a salutary law, as it has enabled creditors to recover from shareholders in insolvent companies the amount of their debts, which, without this Act, it would have been idle for them to have attempted to sue for. It is, I am told, costly in its operation, and there is an epigram by one of the Vice Chancellors something to this effect-that if the measure is as profitable to the public as it is to the lawyers, it must indeed be a very valuable measure." J. F. Macfarlun. No. 58.-JOHN F. MACFARLAN, Chemist. (Selected by the Chamber of Commerce and Having been requested by the Chamber of Commerce and Manufactures of the city of Edinburgh to reply to the queries proposed by the Royal Commissioners, and transmitted to the Chamber by their instructions, I cannot proceed to do so without expressing in the outset the difficulty I feel in attempting it; not merely from the nature of the subject, but also from the limited space to which I must necessarily restrict myself in my ob servations. The importance of the subject itself, the difference of practice in this country from that of most other countries in this matter, and the consequences which may follow any rash or uncalled-for change in the law, all tend to invest with a high degree of interest the discussion of the various topics embraced by the queries. To reply in a manner worthy of the subject, and also satisfactory to myself, would require not only more time than I have been able to bestow, but also more experience than I have yet enjoyed: and moreover, would occupy many more pages than I would presume to intrude upon the Commissioners. With these few preliminary remarks, I shall now as briefly as I may, reply to the queries in their order, and taking the first and second queries together, would remark— 1st and 2d. That it is a sound principle that any person engaged in trade, and deriving profit therefrom, shall be responsible to those with whom he deals to the whole extent of his means or fortune. No other principle can thoroughly satisfy the requirements of trade. The man who goes into the market to procure goods on his own account, taking with him less than his entire fortune, commits something like a fraud on those with whom he proposes to deal; they see that he brings himself, his industry, his talents, his general knowledge, and his self interest to bear upon the question; they doubt not that these will be employed to the full, and as little will they be inclined to suspect that he will leave behind him any portion of the means or capital of which he may be possessed, and which, along with the other more general qualifications, will fall to be taken into account in forming their estimate of the extent to which it may be safe or prudent for them to enter into dealings with him. Had he nothing to offer them as a guarantee that his general talents would be employed for their safety as well as his own advancement but the honest exercise of those talents themselves, they might have sufficient confidence in him to deal with him; but had he the possession of capital, and proposed that his liability in regard to it should be restricted to, say, a fourth, a third, or even a half of that capital, dealing with him would at once be declined. Nothing less than the whole man and the whole means would satisfy the requirements of trade, or furnish an adequate security for the honourable fulfilment of his obligations. If it be so in the case of an individual, it is very difficult to perceive how the union of two or more such persons in one firm can warrant any change in the conditions of dealing. A firm may justly be regarded as an individual made up of two or more parts, and unless all these parts remain equally responsible when united into one, as they were when separate and uncombined, the firm would appear to want a most important characteristic of that healthy condition which is essential to the honest and honourable conducting of business, and would lead to its being regarded with distrust, if not suspicion. Such has been the practice hitherto in this country. Every man engaged in trade is held responsible to the full extent of his means, and so is every partner of every firm; and this condition has been found to be essentially a healthy one, and would seem to point to an answer implying that the present system should not be changed. But the widely extended commerce of this country, its vast amount, and the many great and even complicated objects at which it aims-objects often too great for individual capital and enterprise have already compelled an alteration to some extent, and that with advantage to the general interests of trade. Hence it is not possible to maintain that "unlimited responsibility for partnership debts should in no degree be changed or modified." Charters from the Crown, and special Acts of Parliament have already in some cases, changed nd modified it, and the Act 7 & 8 Vict. c. 90, has conferred important privileges on partnerships of twenty-five and more individuals, and farther experience may show J. F. Macfarian. that it will be beneficial to extend those advantages. But in reply to 3. I would say, that in no case ought advantages to be given to partnerships or joint stocks where individual capital and enterprise are sufficient to accomplish the object. To apply the operation of the commandite principle in such cases would be to "interfere "unduly with the free competition of industry on the part of individual traders, or small partnerships with unlimited liability." 66 (2.) Banking and insurance are objects which can be best accomplished by joint stocks. (3.) I would neither limit the number of partners nor amount of capital; but leave that to be judged of by the object to be accomplished. These should be enough for that, without the necessity for a power to borrow. 4. When the extent of capital is injudiciously restricted, there may be danger, from its insufficiency, of the object being abandoned, and the capital lost. In this case, and with the capital fully paid up, the loss would be that of the partners alone. If the creditors run any risk at all, it must be from the non-paying up of capital, and the remedy would be in requiring that to be paid up before the business, whatever it may be, is commenced; or at all events by instalments as rapidly as the nature of the object may require. It may be useful also to prevent bona fide partners or shareholders from disposing of their share or portion of the capital, unless to others equally solvent with themselves, by requiring that in such cases, i. e., cases in which solvent partners have transferred their shares to persons unable to pay what may be necessary to liquidate the just claims of creditors, the liability of such partners should at once revive. This may prevent ruinous losses to other partners who have not so transferred, and also make creditors more safe. In some cases with which I am acquainted, such transference has been productive of most serious injury; the liability was, of course, unlimited. Had it been limited, the creditors would have been grievously wronged. In addition to the remedies now suggested, I might propose that, in limited liability, the parties might be held bound for double the amount of paid up capital. 5. Such partnerships may be useful, but 5,000l. judiciously employed will be equally useful, whether contributed by one or by fifty persons, in developing new trades founded on new inventions or patented discoveries; but, if many be interested, and the amount contributed by each be small, and especially with limited liability, there may be a tendency to recklessness in the proceedings which will require some check or checks, as suggested in the preceding answer. 6. There may be the ordinary perils of business, aggravated perhaps by a greater tendency to mismanagement. If the partners are limited in their liability to the in-put capital, they can lose no more-but the creditors may lose more-and to protect both may be impossible. The creditors ought to be first protected, and for the means of protection I would again refer to the answer to query No. 4. If this is not sufficiently attended to, the law may directly patronise injustice. 7. I would simply answer Yes, and refer to my answer to query 3. 8. To the first clause of this query I would answer, No. Certainly there will be confidence when the partners of such an association are numerous and wealthy-but it cannot be called undue where the foundation is at once broad and firm. In the joint-stock banks of Scotland we have examples of this. All the individual bankers have disappeared, and large joint-stocks taken their place, with great advantage to the community. There is unbounded confidence, and money is lent in abundance-in other words, deposited with them at a rate of interest corresponding to the state of the money market; and this enables them to fulfil the duty of their position, which is that of a medium between the capitalist and the employers of capital-a medium at once safe and accessible, and of the greatest benefit to the country. (2.) To the second clause I would say that everything depends on the choice of directorsuncontrolled directors ought not to exist. Should these also be incompetent, they may do much mischief; but the remedy is in a prudent choice, with responsibility to the general body of the partners in public meeting assembled. At times there is such a superabundance of capital that great difficulty is felt in employing it so as to produce a good return, but the remedy for this has been found in a reduction of the interest allowed on the money deposited-and not in advancing beyond what is warranted by the resources of the bank on the one hand and the necessities of trade on the other. It is indeed quite impossible for a bank to get its capital into circulation, unless there be a legitimate demand for the money; in other words, it cannot make an issue of notes at its pleasure, whatever may be its desire. Its notes will lie idle in its till unless there is a real demand for them; and then, when issued, either in the discount of bills or on loans by cash account, the exchange is so speedy, that within a few days, the whole capital thus advanced is demanded, and must be paid up at once in the notes of other banks, for which it has given full value-and the balance in gold, exchequer bills, or Bank of England notes; thus affording an effectual check on imprudent advances-a check originating in the very freedom of the trade, and better far than any which the wisdom, even of parliament itself, ever could have thought of (3.) To the third clause I would reply, that it is quite possible for incompetent directors to forget their duties and to become themselves speculators, or to involve their companies J. F. Macfarlan. in speculations of a hazardous nature; but this is as likely to happen with limited as unlimited liability. 9. This query involves a truisin. If incompetent directors advance the monies intrusted to them in a reckless manner, their operations will have an injurious influence on trade. 10. To this query I would reply, No. In Scotland, during even the worst seasons of commercial embarrassment, there has been no such tendency. The large joint stock banks have remained unmoved, and with the confidence of the public no way shaken, even when the Bank of England seemed tottering to its fall, as in 1847. True-this state of matters was owing, not to the Bank of England, but to the restrictive clauses of the Money Act of 1844, which compelled it to withhold from commerce that accommodation which, from its position, it was bound to give, and which, from its ample stores, it was able to give with safety; but which it was prevented from giving by the requirements of that Act-which provided that for every pound sterling of gold exported from the country a corresponding amount of the paper of the bank should be withdrawn from circulation; a balance which reduced the circulation so low, as to place the country on the very verge of a general bankruptcy; a condition from which it was at once relieved by the suspension of the Act, and the permission given to the bank to minister to the necessities of the country. Although the Act was then suspended it was not repealed, and these restrictive clauses may be called into active operation again, by fortuitous circumstances which have no connection with trade or commerce; and their effects in leading to "commercial embarrassment," were so fearfully manifested at that period, that no farther illustration is required to show that the repeal of these clauses would do more to prevent "liability to suspend payments," and also the "recurrence of seasons of commercial embarrassment" than any other single measure whatsoever. (2.) To the second part of the query I would simply reply, No; certainly not in Scotland. 11. I would beg respectfully to refer to my answer to query 3, leaving to the wisdom of parliament to deal with the cases as they arise. 12. I would make no distinction, at least in Scotland-where no bank can circulate either its own notes or those of the Bank of England without giving full value for them. (2.) Life Assurance societies, more perhaps than any other species of public joint-stock companies, require to give a full and perfect guarantee to the assured; for should they fail of the ability to pay when the claims emerge, they fail at a time when it will be felt with peculiarly distressing pressure. Limited liability will scarcely answer with such associations; or if it should be permitted, a proportion of the profits should regularly be set aside for the purpose of providing a fund which may make the assured completely sure. It is, in my opinion, most necessary that these associations should be placed, by the wisdom of parliament, on such a foundation as to prevent the possibility of their failure. 13. I do not think that partnerships with limited liability are necessary, though in certain circumstances they may be useful; but here again I would refer to my answer to query 3. (2.) The removal of the law of unlimited liability may very likely lead to the employment of capital in business which at present is otherwise invested; but again I would refer to query 3—and mention, as illustrative of the point, that some time ago the North American Screw Steam Navigation Company applied for a charter of limited liability. Others, however, had engaged in the same trade without any such protection; and the mercantile community, considering that it would be unjust towards them to grant to any company such privileges, gave it very decided opposition; and in this opposition the Edinburgh Chamber concurred-on the principle that where individual capital and enterprise were sufficient, it was unwise to grant special privileges to particular companies. The following queries are rather subsidiary, and going on the supposition that the law of limited liability has been adopted, and may perhaps be replied to more briefly. 14. (1, 2,) To the first part I would reply, Yes; to the second that it should (see query 4) not include profits. These, if legitimate, are fairly won; and unless in certain cases, as suggested in answer to query 12 (2), may be fairly divided. (3.) To the third I would beg to refer to the answers to queries 4 and 16. (4.) To the fourth I would reply, that the introduction of new modes of dealing may require some additional provisions in the law of bankruptcy, though I do not exactly see what these may be. The law of bankruptcy in Scotland, with a few emendations, would fully satisfy every case that can arise under ordinary circumstances. 15. I have no personal experience of such cases; but if the profits are legitimate and not taken from capital, the partners may receive as much in the course of years as they paid in; but the capital still remaining, they can in no sense be said to have obtained repayment of that capital. (2.) No effectual checks can well be devised against fraud, such as seems to be hinted at in this query. The supervision of the Board of Trade might effect the object. 16. Yes; but under provision that the party to whom the shares may be transferred be equally solvent with him who transferred them. If otherwise, that the liability should revive, or rather that it should continue for a certain period-say one, two, or three years. This, more especially, in the event of liability to double the paid-up capital being adopted (see query 4). 17. I can easily imagine desperate men doing desperate things; in short, becoming J. F. Macfarlan, gamblers, with the view of retrieving their losses; but this again points to a proper choice of directors, registration, publicity, &c., and to the suggestions of the next query. 18. Yes; should the half of the capital be at any time lost, immediate steps should be taken for advertising the partners of the same; and should three-fourths be thus lost, the partnership should at once be dissolved, and the requisite steps for winding up the concern taken. The supervision of the Board of Trade would in such cases be essential. 19. This is the principle of the commandite system, and may perhaps be useful. But it appears to me one of the objections to that system, that the whole parties cannot meet and consult together-but everything must be left to the manager, whose liability may be of little value. Everything should be regulated by the contract. 20. Yes. If the principle of making the liability double the in-put capital be adopted, then the names of the limited partners should be published in the register; and this, indeed, in all cases would be useful. 21. It is difficult to say how far the accounts of such partnerships should be made patent to the public. The Board of Trade should have power to regulate this and all other matters connected with them; certainly, to the parties themselves, the accounts cannot be made too distinct and accessible. The examination by a public accountant under the directions of the Board of Trade may secure accuracy. 22. As above. It is difficult to perceive what the mere customers can have to do with partnerships of this kind more than with any others, so long as they are established according to law. They merely purchase what they require, and, it is to be presumed, pay for it, and doubtless will look after their own interest. 23. I am aware of the fact, but have no knowledge of the effects. 24, 26. I have had no personal acquaintanceship with these; and can only refer to the very full details which have been collected regarding them by committees of the House of Commons. 27. A salary does not give the same status as a partnership; and though it may secure and remunerate the services of such persons, it does not place them in a position of equal value to the concern. 28, 29. I have no experience in this matter, but humbly apprehend that savings' banks, banks of deposit, shares in incorporated companies, and the like, afford means of investment of a safer description than trading partnerships with limited liability are likely to do, 30. I would not expect them to encourage speculation "unduly" more than other partnerships. 31. Such regulation of the laws of usury as may relax them farther with safety may be useful; but the difficulty of so legislating as to prevent frauds, collusion, &c., must be great, and require peculiar attention in framing any statutes on the subject. In conclusion, I would only again venture respectfully to press upon the consideration of the royal commissioners, the propriety of refusing to partnerships the privilege of "limited liability," in all cases where individual capital and enterprise are sufficient to accomplish the object. No. 59. WILLIAM SMITH, Junior, Solicitor.--Sheffield, 7th January 1854. 1, 2. I have for some years been of opinion, that the present unlimited liability of partners operates to prevent many useful discoveries and inventions from being fairly tried, and also to keep down many industrious and intelligent young men who possess every element of success in life except capital. In 1850, I read a paper before the Sheffield Literary and Philosophical Society advocating this view, and in the discussion which ensued upon it, certainly the leaning in the minds of most gentlemen then present was in favour of the adoption of a system of limited partnership, accompanied by somewhat similar or analogous safeguards and means of publicity to those which existed in the United States. It is right, however, to state that the subject was only brought before the Society in a general manner, and the writer did not attempt to enter into a consideration whether or not certain classes of business, e. g., banking and insurance, might present some special reasons why unlimited partnership should be invariably applied to them. The paper so read was afterwards published; and from that circumstance it has often occurred, that when I have been in the company of mercantile men, the conversation has turned upon the subject of "limited liability;" and I have no hesitation in saying that I believe mercantile men are generally in favour of the principle. 3. I think that private partnership should be allowed the benefit of the "commandite" principle, if they are willing to give the requisite publicity to the state of the partnership * This answer was received in consequence of the copies of the queries which were addressed to the Chamber of Commerce of Sheffield (at which place there is no Chamber of Commerce) coming to the hands of Mr. Edward Smith. W. Smith, jun. V; Smith, jun. the amount of capital-the parties by whom, and the shares in which it is contributed, &c. &c. I think the actual managers of a business should always be held responsible for the contracts into which they enter as partners, and for the losses incurred by their acts or defaults, to the extent of their fortunes-so that "limited liability" would only affect those concerns in which there were partners who did not take any active part in the management of the business. As to the particular business of banking, I conceive that in nine cases out of ten the personal character of the directors of a joint stock bank is regarded as the best guarantee for the stability of the bank; and that very few people indeed ever care to read the list of shareholders posted on the wall of the waiting-room. In the youth, if it may so be called, of the joint stock banking system, mistakes were doubtless made-and in some cases the shareholders suffered from the dishonesty, and in others from the incompetency of the directors. I cannot but think that these subjects are now better understood than they were formerly; and such instances of failure as have taken place beforetime, will in future occur less frequently. But of all the misery which has been produced by the failure of joint stock banks, the most deplorable has been that which, owing to the present law affecting such partnerships, has overtaken unsuspecting shareholders, ladies of small means, and others who had invested their savings in these undertakings, probably in perfect ignorance of the nature of the liability to which they were subjecting themselves, and who certainly had no participation in the evil or ill-judged acts which involved the concern in ruin. 4. Similar measures to those adopted in the United States would, I think, be found sufficient. The particulars might be registered in the office of the town clerk in municipal boroughs, and in other places with the clerk of the peace for the county. The register should be open to inspection on payment of a nominal fee. My idea of the requirements of the American Law is taken from Kent's Comm. vol. iii. p. 34, 5th ed. 5, 6, 7. I think such partnerships as are mentioned in question 5, would be most beneficial. A few years' experience would suffice to set the system in working order; and it would not only have the effect of "developing new trades," but would tend to infuse into the minds of the hard-working steady portion of "the masses" much better notions of the relations between capital and labour, and other principles of political economy, which at present are very little understood among the operatives of this country. I confess this point seems to me one of great importance; for there can be no doubt that ignorance is at the root of the numerous "strikes" and "turn-outs" which take place in the manufacturing districts-and I am afraid that such misunderstandings must continue so long as it is the tendency of capital to accumulate so unduly in the hands of single proprietors. It appears to me that the principle of limited partnership would in a few years do a good deal towards bringing about a better understanding between monied capitalists and those whose capital consists of practical knowledge and skill. As to the "perils" to which persons in humble life would be exposed, I think as a general rule, that persons in that class of life who have saved money may be safely left to take care of it themselves, while the very ignorant, (and consequently the most easily to be deceived) are seldom'possessed of any capital to risk. 8, 9, 10. As I before remarked, I think the character of the directors of a joint stock company is the point most regarded-at all events in the provinces, where people know more about each other than is the case in London. And prudent, honourable directors will be just as careful in managing the concern where individual liability is limited, as where it is unlimited. Supposing, however, the fortunes of the directors themselves to be responsible without any limit-then, I think, that, practically speaking, the guarantee for the carefulness of the directors would be as strong as possible, although the liability of the shareholders generally were limited. I am strongly of opinion that the existing law does operate injuriously in the manner mentioned in the latter part of question 10. If a client were to consult me professionally as to the policy of his becoming a shareholder in a joint stock bank, my advice, under ordinary circumstances, would be that he should refrain from doing so, unless it were likely that he would shortly be associated in the management. I am informed by a bank director of great experience, that, as a general rule, large capitalists avoid investments in joint stock banks, from the dread of limited liability. The paper of questions, I find, contains some which I have not considered, and upon which I have no data. Some also are incidentally answered above. 16. I think the interests of limited partners should be transferable during the continuance of the partnership, or in case of death. 19. You cannot prevent "counselling and advising"--but the distinction between active and sleeping partners is tolerably well understood among mercantile people. Lastly. A relaxation of the usury laws would undoubtedly be beneficial, but not to the same extent as a system of limited partnership; and the former would certainly be less favourable to the security of the public-because, in the first place, the capitalist creditor would most probably know more of the concerns of the firm than the ordinary trade creditors, and would therefore have better opportunities of taking care of himself, and making his own property secure. But supposing this were not so that he quietly held on, notwithstanding the concern was shewing symptoms of giving way, and merely took pro rata with the other creditors, the fund available for the debts of the latter would still be considerably, if not very largely, encroached on; while, in the case of a partnership, |