Having thus replied, to the best of my judgment, to the several queries of the honourable commissioners, I do not know that I have any further views or suggestions of sufficient importance to be laid before them; but having been one of a committee of the Glasgow Chamber of Commerce and Manufactures appointed in the year 1851 to make a report to the Chamber upon this question, I think it cannot be wrong to transmit a copy of that Report, which received the unanimous sanction of the Chamber.

No. 5. a. REPORT of the COMMITTEE of the CHAMBER of COMMERCE of GLASGOW, appointed to consider the subject of Partnerships with Limited Responsibility, dated April 2, 1851. (Referred to in the reply of Mr. James Andrew Anderson.) In the year 1837, Mr. Bellenden Ker, of Lincoln's Inn, made an elaborate report to the Board of Trade on the Law of Partnership generally, and on the system of partnership with limited responsibility, as practised in France and elsewhere. And he appended to his report communications received from "several gentlemen eminent for their knowledge "and experience."

This report, after stating the provisions of the French Law of Partnerships en commandite; and of similar laws in the State of New York, and in Ireland, goes on to say, that in France and America, as far as information has been obtained, they appear to be considered beneficial, "as affording the means of directing to commercial enterprize much capital which would otherwise not be so employed; as affording the means of bringing "forward intelligent and skilful persons who have not capital to enable them to enter "into commercial speculations; and as enabling a retiring trader to leave in the business " a portion of his gains, which he might not be inclined to do if his whole fortune were "to be liable to the partnership engagement."

With regard to the expediency of the measure, "by far the greater number of those " who have been examined are decidedly unfavourable to its adoption under any circum"stances whatever." 66 Among those opposed to the measure will be found Mr. Samuel "Jones Loyd (Lord Overstone), Mr. Thomas Tooke, Mr. Larpent (Sir George Larpent), "Mr. John Horsley Palmer, Mr. Kirkman Finlay, and Mr. John Gladstone; while Lord Ashburton, Mr. George Warde Norman, the Honourable Francis Baring, and Mr. Senior, "have expressed themselves favourable to its introduction."

The evidence of the distinguished persons here named is worthy of the attentive consideration of all interested in this question; the committee, in begging reference to it, would only add, that the arguments in favour are generally the same as those already cited in regard to the experience of France and America; whilst the opposing opinions are concisely comprehended in the following conclusions of Mr. Samuel Jones Loyd. "1st. That there does not exist in the present system any evil of serious amount which "the proposed change would remove. 2d. That in the peculiar condition of this country, the advantages of the commandite system would be less, and the evils greater "than in most other countries; and that the inconvenience arising from the derangement "of the existing habits and system of business would be considerable."

Soon after the date of this enquiry, Mr. Alexander Graham, a member of this Chamber, published a pamphlet containing a very clear and able statement of the arguments against the adoption in this country of the system of limited partnerships, as established on the continent of Europe, and in some parts of the United States, particularly in the State of New York. Your committee beg leave to refer to the work itself which is in the library of the Chamber, and which it would be difficult to abridge without impairing its force. In the session of 1843, a committee of the House of Commons sat on Joint Stock Companies. Mr. H. Bellenden Ker being examined by them, was asked, "Whether the " advantage of limitation of responsibility is not practically obtained by the recent alte"ration of the usury laws? Answers, “I think it is to a certain extent."

Three years ago there appeared an anonymous publication under the title of "Partnership en commandite," a copy of which is in the library of the Chamber; but your committee have not derived much additional information from its perusal. Notwithstanding its name, a very small proportion of it has direct bearing upon limited partnerships, and in that little there are assumed as granted the very points which are now the subject of enquiry.

In 1850 a committee of the House of Commons was appointed, Mr. R. A. Slaney being chairman, "to consider and suggest means of obviating obstacles, and giving facilities to "safe investments for the savings of the middle and working classes, &c."

Before the committee, Mr. J. M. Ludlow, a barrister, although decidedly favourable to limitation of liability, declares, that "the result in France, as I understand, and I have "lived many years in that country, has been as respects all joint stock companies en commandite, i.e., where the capital is divided into shares-that the acting members are usually men of straw, and they are the only ones who can be found to take upon "themselves the responsibility of a concern of several hundred thousand francs."

Mr. Bellenden Ker, examined by the same committee, considers that "commercial undertakings would be the very worst mode in which the capital and savings of the working classes could be invested. All ordinary business partnerships should continue "without limitation of responsibility. Extreme and perfect certainty and great facility of

J. A. Anderson.

J. A. Anderson.

James Stewart.

"conversions, are the great objects in every investment for the middle and working "classes."

Mr. John Stuart Mill gives his opinion to this committee, as more at large in his most valuable work on political economy, in favour of limited partnerships.

But the fairest and best exposition of both sides of this important question seems to be contained in the Report of a committee of the Society for the Amendment of the Law, published in the Law Review for May 1849. The majority of that committee is favourable to commandite partnerships under certain restrictions, and both the majority and minority supply excellent summaries of the reasons on which their respective opinions are founded. Having thus cursorily noticed what has taken place with respect to the proposed change in the law of partnership, your committee will close their report by stating their opinion to be decidedly adverse to the measure.

Without attempting to controvert the statements and opinions, which however are far from amounting to proof, of the benefits of limited partnerships in other countries, we consider the circumstances of Great Britain to be so materially different as to destroy any analogy between them. With an "exuberance" of capital, and a tendency to speculative investment, which is not deterred by the present law of unlimited responsibility from embarking in all sorts of hazardous schemes,-when noblemen, and professional gentlemen, and tradesmen, and farmers, and ladies, engage in mines and ironworks, and marine insurance, and banks, and exchange companies, and shipowners, assuredly the disposition to invest capital in business requires no additional stimulus.

Thus much for the first object proposed, that of "directing to commerce, capital "which would otherwise not be so employed."

As to the next, that of affording the means of bringing forward intelligent and skilful persons without capital; we are of opinion, that in no country is there less difficulty experienced by persons of skill, ingenuity, or intelligence, in getting their talents recognized and rewarded, but as has been justly noticed by the witnesses examined, the abolition of the usury laws affords a means of accomplishing this, and indeed all the objects sought, with equal convenience by means of loans.

The "affording of an advantageous investment for the savings of the middle classes," appears to be the most objectionable of any; as, besides the want of the essential qualities of "perfect certainty and great facility of conversion," the middle and working classes must be particularly ill-qualified to judge of the safety and eligibility of commercial adventures.

There is an additional objection to limited partnerships which has scarcely been adverted to in the progress of the enquiry, but which appears to be of too much importance to be overlooked; the tendency to the encouragement of recklessness and gambling, not only to the great hazard of the capital invested, but to the creation of a most injurious and unjust competition with those in the same line of business who continue to conduct their affairs under the restraints of prudence and forethought, imposed by the present law.

It may be admitted, that in certain special cases of national importance, limitation of responsibility may be and has been of eminent advantage. The East India Company, the Bank of England, and the Bank of Scotland, are instances of great undertakings, which owed their establishment to the limitation of responsibility conferred on the projectors; and the whole system of railways stands as a mighty example of the utility of limited liability (and of the flagrant abuses to which it is exposed). But admitting the arguments in favour of such companies, your committee are of opinion that the Chamber should petition the House of Commons against the proposed alteration in the general Laws of Partnership.

No. 6. JAMES STEWART, Barrister-at-Law.-16th November 1853.

1, 2. I am of opinion that the unlimited responsibility of partners for partnership debts should be modified. I think the present law on the subject restrains improperly the perfect freedom of contract which should prevail in a civilized, and more especially a commercial country, and under certain circumstances, and with certain precautions I wish to enable parties to avail themselves of a limited liability. With this view I proceed so take into consideration the questions with which I have been favoured by the Commissioners, omitting such as my pursuits and experience do not enable me to give any reply to. 3. I think a limited liability should be allowed only as to the debts of certain part nerships, the partners in which should comply with certain regulations.

(1.) I would make the limited responsibility of partners applicable to such private partnerships as well as to public and joint-stock partnership. I do not think, if properly regulated, this would unduly interfere with the free competition of industry on the part of individual traders or small partnerships with unlimited iiability

(2.) I apprehend that a limited liability is already applied to partnerships for insurance as in the policies of all the offices with which I am acquainted, the claim of the assured is limited to the capital stock of the company, and I am not aware of any evil result from this to any one, while I know that it is attended with great good, as it secures a respectable and competent body of directors. As to banking partnerships, I know of no good reason why limited liability should not be extended to them; but that this exception

10. I do not see how such a banking or other company is more likely to be driven to suspend payment than others. I do not think a bank with limited responsibility likely ever to obtain an extensive business; a commandite partnership I think is not suitable for any business which requires extensive credit, but rather to operations which would have to be carried on mainly with ready money, and in which, with a view to large profits, considerable risk of loss to a limited amount is intended to be incurred-such as mines, &c.

11. I think there ought not to be any interference by any government authority, except perhaps to the extent mentioned at the end of my answer to the sixth question. I think all public companies should be established upon one common principle (except as mentioned in my next answer), and upon such basis as the parties may agree upon; except when the objects of the company render it necessary to have power over the property of third parties, as in the case of railroads, canals, &c., and in such cases I believe the present practice of a special Act of Parliament is the best mode than can be adopted, whatever objections it may be open to.

12. I would not allow any bank or other body to issue notes payable to bearer under any circumstances whatever; but if it is allowed I would make every partner liable without any limitation upon the notes. I see no reason for excluding life insurance and other societies from the benefit of a limited liability.

13. I have already said that I think partnerships with limited liability upon the whole desirable, though not so important as is supposed by many. I think the law of unlimited liability does prevent capital being employed in many desirable enterprises, but not in commerce generally.

14. In my answer to the fourth question I have stated what I think should be the nature of the limitation of liability, and I think this better than comprising the sums drawn out for profits in the extent of liability, for one among other reasons, that it is a much more simple operation. In my answer to that question I have stated what I think the best way of liquidating the liabilities.

15. I have no personal knowledge as to this, but I have heard, upon what I consider good authority, that there is a good deal of fraud in withdrawing capital under the name profits. I do not see that the course suggested in the 14th question would be an effectual check upon this, though it certainly would be a check to some extent.

16. I think the transferability of the commandite partner's shares should be altogether a matter of option among the partners; every transfer should, of course, be registered, and I think, be also advertised.

17. I think this likely to some extent; I think it would be counteracted to a considerable degree by the means I have suggested in my answer to the fourth question.

18. I think not. I presume that in every agreement of partnership some provision of this nature will be inserted, and I think this may and should be left to the partners.

19. I think they should forfeit their privilege if they appeared in any way in the business; the appearance of limited partners acting in the business is calculated to deceive persons dealing with the firm. In this respect I cannot conceive any regulations more judicious than those contained in the French code, in which I apprehend there is nothing to prevent the commanditaire privately counselling the commandité partners.

20. I think so, to the extent of stating the name of the firm, the names of all the partners, as well commanditaire as commandité partners and the extent of the capital or liability of each commanditaire partner. I do not see that anything more need be published, but I think a signed copy of the agreement of partnership should be deposited with the officer, to be produced only under the order of a court, so as to supply evidence easily accessible.

21. Nothing more than I have suggested in the latter part of my answer to the fourth question.

22. No. Any person disposed to deal with the firm may easily consult the register. 23. I am aware of the Act, but I have not any practical acquaintance with the course of business. However, I have often heard from persons of great commercial experience in Ireland that this statute is never acted upon.

24. I have not any practical experience upon the subject of this query, but I have always heard Frenchmen and Americans, and especially Frenchmen, speak favourably of commandite partnerships.

I cannot conceive that in any country a commandite firm can enjoy the same extent of credit (I mean trust) as a firm of unlimited liability.

25. 26. I cannot give any answer to this question.

27. In effect (though by rather an intricate process) this may be and is now done. I should think that commandite partnerships will be very little resorted to for such purposes as those, but rather for the employment of capital.

28. I have no practical knowledge of this, but I should not think the persons who would embark in commandite partnerships are of the same class as those who lodge their savings in savings' banks and similar institutions.

29. There cannot be any doubt of this.

30. I cannot answer this question practically.

31. I should think not, though I should consider it a great general advantage if the usury laws were altogether abolished. Loans such as are here suggested, even without

W. H. Cotterili

W. H. Cotterill.

Sir George Rose.

limit of time, are now, I apprehend, substantially practicable, so that land is not in any way comprised in the security.

Nothing further occurs to me on the subject.

No. 10. SIR GEORGE ROSE (a Master in Chancery).-19th November 1853.

1 and 2. I am of opinion that it should be changed. I think the present state of the Law is a mischievous restraint upon industry and capital.

3. What the results of the experiments might suggest I cannot anticipate, but do not a priori think there should be any exception; it should be general; and as to the interference with individual traders or small partnerships it would be adequately compensated for, in the pecuniary facilities which it would open to them, as to others.

4. I see no reason for any restriction as to capital. As to the number of partners-it would be necessary to guard against the inconvenience that would occasion in proceedings at law; and it could easily be provided for.

5. It does not appear to me that the limit either as to the number of partners or the extent of capital would be more beneficial to the object, than if they were unlimited; but I doubt whether I comprehend the state of things which has suggested this question. 6 and 7. I think the persons should be adequately described—a minimum of contributory capital should be fixed-and ample means given of ascertaining who and what the partners are, and the respective amounts of contributory liability—as also the engagements, if any, and in what other concern.

8. Uncontrolled directors, as it strikes me, would act much in the same spirit, whether the liability was limited or unlimited. "Consule quid valeant humeri," is not the motto of joint association.

9. It appears to me it will find its level after the system has had its fair experimental operation.

11. I prefer one common principle.

12. I would make no distinction; always, however, taking care that there should be ready means of knowing who and what the parties were and the several extent of their liabilities.

13. That I think is the effect of it.

14. I see no principle either abstractedly or in relation to parties dealing with limited partnership, why the liability should be extended beyond the amount of capital undertaken to be advanced; the law with very little alteration, has, as it now stands, means and machinery enough to deal with the liabilities of such partnerships and the individuals composing them.

15. Probably; but I do not think that the suggestion in the 14th query is the legitimate way of checking such proceedings. If under "the name" of profit, the abstraction has been fraudulent, or by dishonest connivance and management, there should be other modes of dealing with it, even to the letting in of unrestricted liability; but this can probably only be provided for in the result of experiment and the working of the system.

16. Not transferable, otherwise than as a partner, as the law now stands, can part with his interest and relieve himself from liability.

17. It probably might, but this must be left to check itself.

19. This should be left open, and to the particular provisions in each particular business. 20. I think it "indispensable" that the amplest means of information should be open to the public.

21. I see no necessity. In truth, I think it would be too much of inquisitorial dealing, not required more in a limited than an unlimited partnership. I speak of course, as between the firm and the public; as between the members of the firm themselves, it is different.

24. I understand so, but I answer, not from any personal experience, but from the publications I have seen on this subject. There is a late work published in America on partnership, which I was desirous of seeing before I answered these queries; the copies have, I understand, all been disposed of; the work is highly spoken of, and a further supply is expected.

26 and 27. Of the two, perhaps as a point of social status, the partner sounds more pleasing to the ear commercial than clerk.

29. I should in point of safety myself prefer it.

30. I do not know.

31. That is only another mode of trade, and would of itself fall within the principle applicable to limited investment.

Lastly. I am strongly in favour of a change which will admit of any given amount of capital to be advanced upon participation of profits, without inducing to the capitalist, so advancing it, the risk of utter ruin. The details, the consequences, the mischief, or benefit, public or private, flowing from this change of law, it is not a priori so easy to conclude to; it appears to me that the remedies of the law to some extent already exist, and may easily be deduced from the analogy of the existing relations, or provided for nз experience and exigency may require.

particularly ladies and clergy, have been involved by attractive baits held out by specu- James Freshfield. lators in the form of shares are too recent to require more than notice. Fully admitting that the construction of railroads requires the establishment of corporations, and that the evils of gambling arising from them is not a sufficient cause for withholding the limitation or liability in such cases, I think that evil is not to be overlooked in contemplating the unnecessary extension of the principle.

Some of my objections may seem to apply to all associations for trading purposes, though without unlimited liability of the members, and this, to some extent, is so; but it does not necessarily follow that such associations are to be prohibited-the proper check on the unnecessary formation and on the management of joint stock companies is the liability of the adventurers, and my objection therefore applies to the removal of this

check.

The cases in which corporations may be useful are considered by Adam Smith in the "Wealth of Nations." It is not necessary to recapitulate them, but they appear to me to be as follows:

1. Undertakings requiring a duration beyond that which can be ascribed to ordinary partnerships, and involving risks which require a very large average to make them secure, such as life and fire and marine insurance companies; but it is very remarkable that though the risk undertaken by such companies is enormous, such is the disposition to embark in profitable enterprise that it has not been found necessary generally to relieve the members of such companies from liability.

2. Undertakings requiring very large permanent outlay, such as docks, canals, and railways. Associations formed for constructing these, though they trade incidentally, are not in their nature trading companies. But limited liability of partners is properly accorded to them on the ground of necessity.

Steam boat companies come under this head.

3. Banking companies were thought by Adam Smith to be exceptions because he considered the business of banking so simple as not to involve the difficulties of ordinary trades; but it has been proved by recent experience that it is possible for the managers of joint stock banks to do as much mischief to the public as the managers of other trading companies, and the failures have been as signal. In the last considerable failure the assets of the bank were not expected to pay more than 5s. in the pound, leaving the shareholders to pay the difference which otherwise would have been lost to the public.

Such banks furnish no argument for the alteration of the law, but the contrary. They are valuable for the protection they afford to the public, particularly in the provincial towns; but that protection arises principally from the unlimited liability of the shareholders.

4. Other exceptions may exist in a state of society, or in countries where capital is scarce and cannot be easily procured. Banks could hardly be established in the colonies without a limit of liability, and associations for other trading purposes will be found to need encouragement in the colonies on this ground; but in England capital for all legitimate purposes is over abundant.

II. With reference to Commandite Partnerships.

Such partnerships are unknown to the law of England. They are objectionable in principle as tending to encourage those to enter trade whose position and callings are inconsistent with it, and who have neither aptitude nor experience for it, and they are only excusable in countries where capital is so scarce that extraordinary measures must be taken for its procurement. They are on this ground allowed by the laws of some foreign countries, and I have heard that an Act passed sanctioning them in Ireland; but I believe they are little known there.

Such associations are totally unnecessary in England. For all legitimate purposes capital is more than abundant; and there are always persons ready to enter any line of business, or any adventure affording a chance of profit.

The usury law being abolished, capitalists who are indisposed to the risk of trade, may lend their money at any agreed rate of interest, however high. This form of partnership, as a means of attracting capital, is therefore uncalled for. It is sought for in the mere spirit of gambling. The uncertainty is the allurement.

If it could be shown that the average profit of a business did not exceed eight per cent., and the borrower offered to take the money at even a higher rate of interest, the idea that every speculator has that he shall draw the large prize, would lead many to prefer to take the chance of a risk of uncertain profit.

It is notorious that in life insurance, no scale of rates, however low, is so attractive to a class of persons, as the prospect of an uncertain addition to the policy. So there are persons who would like to enter trade for the chance of its profits, if insured against the risk of partnership; the chance of a share of profit being to them a higher attraction than the certainty of a high rate of interest. But this is pure gambling, and it is certain that the alteration suggested in the law would tend to encourage a very demoralizing habit, and that among a class of persons whose disposition to speculation requires repression and not encouragement, and whose inexperience requires protection against designing and reckless adventurers.