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J. S. More.

ever, upon loans made on personal security, is so great an alteration upon our former law, that it was made merely by way of experiment, and accordingly the enactment was declared to be temporary, and to expire on the 1st of January 1842. But by several subsequent enactments, the provisions of that statute were continued, from time to time, and, by the last enactment, till January 1856.

This is one of the alterations of our law, which when once made and acted upon, it is difficult or impossible to repeal or extinguish. I assume that this must now remain the law of the United Kingdom ; and it is upon this footing that I address myself to the consideration of the important point as to the law of partnership, regarding which my opinion is desired.

Assuming, then, that a person may lend to a company, carrying on business, a sum of money, and may stipulate for such loan any rate of interest upon which the parties may agree, I cannot see upon what principle it should be doubted that this person might equally advance this money, as a partner, stipulating that he should be liable to no further extent for the debts of the company to whom he made the advance, and that he should draw such a share of the profits as should correspond to the sum so advanced. It appears to me that, in the present state of our law, this would be an arrangement clearly for the interest of all concerned, and which could lead to no consequences injurious to any party. Take, for example, this illustration. Suppose A should lend to B and Co. 1,0001., and should stipulate that he should receive twenty per cent. yearly for this loan, which it cannot be doubted would be a legal stipulation, and one which the law would enforce. Suppose, further, that A should make it a condition of his loan, that he should be permitted to superintend the business of B and Co., so as to satisfy himself that his loan was secure, and that his stipulated interest would be duly paid. There can, I presume, be no doubt of the legality of such a stipulation, in reference to a loan, as the law now stands. And if so, A would not merely enjoy all the rights of a partner, and even something more, as there are few trading companies of which the capital yields twenty per cent. of profit, but he would also have this great benefit over a partner, that after drawing the twenty per cent. yearly for five or six years, and thus withdrawing probably, a great part of the funds, which ought to have gone to the payment of other creditors, he would be entitled, on the bankruptcy of B and Co., to claim on their estate, along with their other creditors, for the original loan of 1,000l. Now if, instead of making this loan as a creditor, he had been allowed to advance the 1,0001. as a partner, with a stipulation that he should be liable for the debts of B and Co. to no greater amount, the result would be that he would draw his share of profits, whatever these might be, corresponding to the 1,0001. advanced by him, but probably far within the twenty per cent., and, on the bankruptcy of B and Co., he would lose his 1,0001. and could not rank with the various creditors of the company for this sum.

It appears to me therefore, that, as the law now stands, to legalise limited or restricted partnership is plainly for the benefit of all parties concerned. It is manifestly for the benefit of the public, cr of the creditors of the Company, and it is also for the benefit of the Company to whom the advance is made, who, instead of agreeing to pay a large random sum for a loan of money to enable them to carry on their business, may accomplish their object by agreeing to communicate such a share of the profits as that to which the advance is fairly entitled. And it is humbly thought that the present law which drives parties, willing to make an advance to a company, to the necessity of doing so, as creditors making a loan, and of stipulating an excessive rate of interest, equivalent to the largest possible amount of profits, is altogether at variance both with sound policy and correct principle.

Having given this general explanation of my views, my answers to the several questions put are as follows :

1. I am of opinion that, while the law stands as above explained, the limited responsi. bility of some of the partners for partnership debts is expedient and desirable.

2. I have above explained the grounds on which I think that the unlimited responsibility of some of the partners for partnership debts should be modified and restrained.

3. I see no more ground for distinguishing, in this respect, as to partnerships than there would be for distinguishing as to loans made to partnerships.

(1). I would make the limited responsibility apply to all partnerships.

(2.) I think that if loans may be made to partnerships for banking or insurance, there can be no reason for excluding a limited responsibility in such cases.

(3.) I see no reason for making this rule applicable only where there is a limited number of partners. In short, assuming there is a partnership, where the acting partners are liable, without limit, for the debts contracted by them, I see no reason why a person who might lend money to such partnership, and so be a creditor of the company, might not advance the same amount as a partner with a limited responsibility.

4. The only danger to creditors against which it would be necessary to guard, would be to prevent the partuer, so advancing the money on a limited responsibility, from claiming as a creditor, on the insolvency of the company.

5. Such partnerships as are here mentioned might be beneficial to the community. But I assume that, in every such partnership, some of the partners undertake an unlimited responsibility for the debts of the company.

6. All that the limited partners could lose would be the sum they had advanced or

J. S. More

cause.

had agreed to advance to the company; and I think they might be safely left to attend to their own interest as to the partnership.

7. I do not contemplate any case where all the partners of any company would incur no further liability than for the sum advanced by each ; for this would be to create a corporation; but assuming an ordinary partnership where some of the partners are liable without limit, I do not see how the introduction of other partners with limited responsibility, could have any injurious effect on parties trading either singly, or in partnership, in the usual way.

8. All the injurious results here suggested may arise in regard to joint stock companies incorporated by Royal charter, or by Act of Parliament, where the individual shareholders are liable only for the shares subscribed by them; and I see no reason to believe that private partnerships, however numerous the partners, could be exposed to any other disadvantage.

9. I do not think that such partnerships would necessarily operate injuriously on the interests of trade.

10. I think the present law of unlimited liability operates injuriously by deterring persons of property from becoming shareholders of banks and other public companies.

11. For the reasons I have already given, I do not see why it should be necessary to apply to the Board of Trade, or to Parliament, in reference to the limited responsibility of partners in particular cases. I think one common rule ought to be applied to all partnerships.

12. I do not see why any distinction should be made between banks and other partnerships, even though the banks should issue notes. But I here refer to the practice uniformly followed in Scotland, by which all banks which issue notes must exchange them with the other banks twice a week. If this rule were adopted in every part of the United Kingdom, there could scarcely be any over issue of notes, or any risk from this

13. I think the law of unlimited liability has a great tendency to prevent capital from being usefully employed in commerce; and that partnerships with limited liability would probably induce capitalists to employ their money in commercial pursuits or adventures.

14. I think the liability of limited partners should be restricted to the original sum advanced, or undertaken to be advanced by them, and should not affect profits actually received by them, during the solvency of the partnership.

15. I do not know what has been the experience in the case here mentioned, of limited partnership; but I can easily conceive cases, where a person lending money to a partnership at a high rate of interest, might, before the insolvency of the company, have drawn as much, under the name of interest, as would more than repay bis original advance to the company.

16. I do not see any evils which would result from allowing the shares or interests of limited partners to be transferred to third parties, which would not equally apply to the transferance by creditors of loans made to the company.

17. I do not see how the limiting of the liability of partners would have more effect in encouraging hazardous speculations, than the present law as to the lending of money.

18. I think all such contingencies as are here mentioned should be provided for in the contract or articles of partnership.

19. Though I know it is the law in some countries that limited partners are prohibited from interfering in the business of the company, and must, in every sense, be dormant partners—I see no good principle for this rule. A creditor lending money to a company may, as already mentioned, and as the law now stands, make it a stipulation of his loan, that he shall be allowed to superintend the business of the company, and he may do so, without affecting his claim as a creditor, and I see no reason why a limited partner shall be placed on a different footing.

20. I am of opinion that, if not indispensable, it would be highly expedient, that all. partnerships, and especially those having limited partners, should be registered, so that the public may know who the partners are, upon whose liability they can rely. In such register, the sums respectively furnished by the limited partners, or which they have agreed to furnish, should be specified ; and in default of such specification, these partners should be held liable without limit. The register should be accessible to the public, at all business hours, either gratuitously or for a small fee.

21. I do not think such periodical statements as are here suggested would be expedient or necessary

22. I do not think any publication beyond the register already mentioned, would be expedient or necessary.

23. I am aware of the Irish Statute here mentioned ; but I do not know how far it has been put in operation, though I have heard that it has been very little, if at all,

24. I cannot answer this question from any personal knowledge ; but I have heard that such limited partnerships, as are here mentioned, have worked well in some of the states of America.

25. There is a register kept in Scotland, of the bankruptcies where sequestration has been awarded; but I cannot answer the other parts of this question,

acted upon.

J. S. More.

of profit.

26. I cannot, from my personal knowledge, answer this question.

27. To remunerate services by salaries proportioned to the profits of the business, seems a very expedient suggestion.

28. I have no experience of the matter here mentioned.

29. Undoubtedly the depositing in a bank of the savings of the lower class, is far safer than investing them in trade, even with limited liability ; but it gives no such chance

30. I am not aware of the experience in such cases.

31. I do not see how the laws against usury could be more relaxed than they now are, unless the restrictions as to loans on heritable security were to be repealed.

Lastly. It will be observed that, throughout all my answers to the questions put, I have proceeded on the assumption that the present law, by which any rate of interest may lawfully be taken on personal security is to continue ; and I regard a limited partnership to be substantially nothing different, in effect, from a loan to the company, with this important advantage in favour of the public, that the limited partner draws only a share of the profits, if any shall be made, corresponding to his advance, and that, on the insolvency of the company he cannot compete for such advance, along with the onerous creditors of the company.

Willium Cotton.

No. 4. WILLIAM COTTON, Director and late Governor of the Bank of England.-

11th November 1853. I was duly favoured with your letter of the 3d instant, but until Wednesday last I was not able to obtain a copy of my evidence before the Committee of the House of Commons in 1851, on the law of partnership.

After fully reconsidering the questions put to me, I see no reason to alter the opinions I expressed on the contrary, I feel a stronger conviction that any material alteration of the law generally, to affect the unlimited responsibility of partners would be an injury rather than a benefit to those engaged in business.

In some undertakings of public importance, the conduct of which is of necessity confided to a few of those engaged in it, a limitation of responsibility is reasonable ; but this is better provided for by an Act of Parliament or a charter of incorporation, than by any change in the law generally affecting partnerships.

The limitation of responsibility would encourage partners to give less attention than is at present given, to the prospects and management of any concern in which they may engage; and those who have a small capital at their command and who probably risk the whole of it, will suffer more severely than the large capitalist.

The latter would have the opportunity of acquiring superior information as to the probable result of the adventure, and of the character of the proposed manager, than the tormer, and would be able from time to time to ascertain how the business was conducted, and might be enabled to part with his share, after a serious loss, before it was known to the partner of small capital.

A rich man with his superior information might invest to him a small sum (say 5,0001.) in a number of concerns under the management of active agents, all of whom might promise and probably for some time pay him large dividends, in many of the cases from real profits ; but in others, as has often been the case, notwithstanding heavy losses, in order to keep up the credit of the concern, and preserve to themselves remuneration as managers, and probably under the expectation of future profits compensating for past losses.

If one of these concerns failed, the creditors might suffer severely ; but the rich man would only lose his 5,0001., and might probably be more than compensated by the large dividends he might have received from this, and from other concerns, in which he was similarly engaged.

There would be no means by which the public could ascertain from time to time what proportion of the original capital remained in the concern. If the accounts could be depended on, the rich man might be compelled to make good any deficiency in his capital, which had been occasioned by losses in any year; but the man who had engaged all his capital in the concern could not do so; and many partnerships might be in a bankrupt state for many years without the public having the slightest suspicion of their being insolvent; many of the parties engaged in it being known to be men of large property.

Since the alteration of the usury laws, men of small capital, who conduct their business with tolerable prudence, have greater facilities of obtaining money on discount or loan in times of pressure. When the rate of interest was limited by law to 5 per cent, men of small capital who in ordinary times had been able to obtain money at the rate of 5 per cent. interest, were at once deprived of the accoinmodation as soon as the rate of interest or discount on securities superior to that they could offer would not be taken at less than the legal rate of interest.

If by an improvement of the law relating to partnerships, Courts other than the Court of Chancery are open for the determination of disputes, I am of opinion that partnershivs established on limited rest onsibility will tend to endless litigation.

William Cotton.

I am sorry that my other engagements have prevented me from devoting more time to this important subject; but after the evidence I gave before the Committee of the House of Commons, and what I have now stated, I consider it unnecessary to give specific answers to the printed paper you have sent me.

No. 5. JAMES ANDREW ANDERSON (late Manager of the Union Bank of Scotland.)

-14th November 1853.

J. A. Anderson.

1. My attention has been for some time turned to this commercially important question, and having given to it my deliberate consideration, not without having regard to the high authority, nor to the philanthropic motives of those from whose opinions I differ, I have arrived at a strong persuasion that the general law of the unlimited responsibility of partners, for partnership obligations, “should in no degree be changed or modified.” My reasons generally for this opinion cannot be so well expressed as in the concise and comprehensive language of Mr. Samuel Jones Loyd, when examined in the year 1837, and to which I beg to refer. They will be more fully developed in my replies to the special queries in succession.

2. 3. I am of opinion that limitation of responsibility may with propriety be granted in special cases, such as enterprises of too great magnitude and difficulty for private adventure, and which would, therefore, not be urdertaken at all

, without the proposed limitation. Special favour should be shown to undertakings in which there was a probability of great public advantage, as well as of private gain.

(1.) I would not make the limited responsibility applicable to private or ordinary partnerships, as I have no doubt that it would unduly interfere with the free competition of industry. I apprehend that limitation of responsibility would have a tendency to induce the parties so privileged to venture upon greater risks than ordinary partnerships could prudently do.

(2.) Banking and insurance companies are those of all others which, in my opinion, ought to enjoy no exemption from unlimited responsibility, not only on account of the magnitude, but of the multitude of their dealings; and, (particularly in the case of banks of issue), because in very many cases they are trusted, of necessity, by those who have no adequate means of knowing their circumstances.

It is surely unnecessary to point out the extreme difference between the present times and those when charters were (wisely, granted to the first constituted banks. There are now few branches of business which seem less to require the stimulus of limited liability than banking and insurance, and the peculiarly cruel consequences of the insolvency o such partnerships should settle the question, as to affording them any exemption from entire liability.

(3.) I do not see that the limitation of liability should depend upon the greater or smaller number of partners, or extent of capital.

4. It does not occur to me to suggest any measures for the security of creditors in cases of limited responsibility.

5. It does not appear to me that any facility would be given to the development of a new trade, by its being taken up by fifty partners advancing 5,0001. with their responsibility limited to that sum, which would not be at least as effectually secured by the whole being undertaken by one or a few individuals, without any immunity froin liability.

6. I would not do anything to attract persons in humble life to enter into such partnerships, neither would I throw any difficulties or obstructions in their way. Many such associations already exist in the form of building companies, bread societies, stores, &c., and their success varies, as in all other cases, according to the prudence with which they are established and administered. With regard to such partnerships among the humbler classes, it is to be observed that limited responsibility is comparatively not a great boon, as they have little to lose beyond their share of capital, and because the most prudently conducted associations make it a rule not to contract debt, which is the most unobjectionable way of limiting responsibility. There seems to be a little confusion of reasoning on this part of the question. It is argued by the favourers of limited liability, that retiring partners or benevolent capitalists would be disposed to advance capital to deserving young men associated together, if they could do so without risking their whole fortunes. But the desired object may readily be attained, either by lending the capital at such a rate of interest as the benevolence (or greed) of the lender may dictate; or by joining the partDership with such an advance of capital as will enable it to carry on the business without asking credits ; or even a further specific sum might be borrowed in order to prevent the necessity of contracting debts in the ordinary transactions of the company. But what seems to be really sought by the proposed limitation is not the power of employing spare capital in trade without incurring further risk—but, by this limited advance of capital the power of obtaining an indefinite extent of credit, and thereby doing a greatly extended business, from the liabilities of which there is no good ground of exemption.

7. I am of opinion that all trading concerns, large or small, conducted under a responsibility limited to the capital advanced, would exercise a very hurtful and unfair influence upon the operations of competitors not so privileged.

J. A. Andreson.

8. I am not sure that I quite comprehend this query. It seems, as I read it, to comprise two points. Whether unlimited responsibility of a “numerous and wealthy list of shareholders” leads to an undue confidence in those who lend to them; and whether the same thing does not lead to imprudent lending by them “ through an uncontrolled board of directors.”

In reply to the first, there can be no question that of two companies, equal otherwise, the one will enjoy the greatest confidence, which besides its paid-up capital, has the responsibility of a numerous and wealthy list of shareholders to cover its obligations; but I do not see that this can be considered as "undue” confidence. As to the second point, I do not believe that boards of bank directors make advances more extensively on account of the unlimited responsibility of their proprietary. They are generally themselves large proprietors, and the tendency therefore, I should rather expect, would be in the opposite direction; but I do not believe that the consideration has any material influence either way.

9. I am of opinion that exemption from liability would have a great tendency to produce unwholesome competition by lessening the penalty of misconduct.

10. Joint stock banks in Scotland are not peculiarly liable to suspend payment at seasons of commercial embarrassment. In England there have been more such cases, possibly from their higher profits tempting to greater risks; but when such suspensions have occurrea, the unlimited responsibility of the partners has prevented the public from being sufferers.

reference to the printed list of partners of joint stock banks will show how little wple of all conditions and characters are “deterred” from becoming shareholders.

11. I am strongly of opinion that the general rule for joint stock and all other companies ought to be that of unlimited responsibility; as it seems to me to be in accordance with natural equity that whoever contracts a debt should discharge it from any means which he may possess, and not from a special fund only which he has chosen to appropriate to that purpose. The few exceptions which I would be disposed to allow, I would place in the discretion of Parliament, or-under certain limitations-of the Board of Trade.

12. I would allow no limitation of responsibility to banks, whether issuing notes or not. They are unavoidably trusted by multitudes who have no means of ascertaining their situation, and therefore every care ought to be taken not to impair the security of the public.

13. I do not think that limitation of liability is necessary to induce capitalists to employ their money in commerce, either at home or in the colonies. I perceive no want of disposition to employ capital in that under the present law; if I did, I am not sure that I should stimulate it by immunities of any kind, but leave the distribution of capital to its natural course.

14. Being of opinion that the responsibility of partners should be unlimited, it follows, that if this rule is to be departed from, I should desire the liability to apply not to the paid-up capital alone, but to as much greater an extent as possible.

15. I have no personal experience or knowledge to enable me to answer this query. No doubt the course suggested in the 14th Query would act as a powerful check.

16. Disapproving of limited responsibility, I would give no facilities to its operations. I would not allow shares to be transferable unless under very strict regulations.

17. 18. I believe it has been found extremely difficult to enforce the provision, common in the deeds of joint stock companies, that the company shall be wound up as soon as it shall be found to have lost a certain proportion of its capital; and I should be afraid, especially when imprudence and recklessness had occasioned the loss, that further recklessness might be resorted to for the chance of recovery. I cannot suggest any effectual remedy.

19. If limited partners are to be permitted, I am of opinion that they ought not to be allowed to interfere in the management, under penalty of unlimited responsibility being thereby incurred.

20—22. All possible publicity ought to be given to the formation and actual position of { companies of limited responsibility. After all, the amount of capital, &c. which such publication would exhibit, would not be of much use, without knowing how the assets were valued, and also the amount of obligations, and these again may vary from day to day.

23. I am aware that an Act was passed in 1782 allowing partnerships with limited liability in Ireland, and I understand that it has remained inoperative; but I have no knowledge of the particulars of the case.

24—27. I have no experience of the operation of limited partnership in foreign countries ; but it appears to me that the great difference between their circumstances and those of Great Britain would make it unsafe to reason by analogy from the one to the other.

28–30. I consider savings banks, or banks of deposit to be much more eligible investments for the savings of the lower and middle orders, than partnerships in trade, not only from the uncertainty of trading profits directly, but from the moral effect of that uncertainty in leading to a taste for speculative profit in preference to the savings from steady industry.

31. I am of opinion that the usury laws might be repealed, or at least further relaxed with general advantage.

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