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Law of Partnership, Limited Liability and Joint-Stock Companies.

275 of private partnerships that property and capi- i decided the other way. What he proposed to tal not embarked in the concern, and upon do, therefore, was to introduce a measure which which money was never lent, was liable for the would have the effect of reversing the decision debts of the partnership, it remained to be con- in the case of Waugh and Carter. sidered how they should deal with that state of The law would then stand thus, that a man things.

might become a dormant partner in a concern, The way would be to extend the present law and put a certain sum of money into it, without of limited liability to these partnerships, and to the risk of losing any money beyond the sum say that any number of persons, however put in. The result would be that you would small (and some went so low as one person), have in effect the system of commandite, withshould be formed into a corporation, and as out making any great innovation in your old such should have the privilege of limited lia- law, and the system of loans, not carried on in bility. To that proposition he was not disposed the circuitous manner which he had described, to accede, and for this reason, that there was but directly. Bankers were left out, not besomething incompatible and inconsistent be cause he saw any good reason for doing so, tween the character of a principal being a cor- but from respect to the former course of legisporation whose liability was limited. There lation in that House, which had been to leave would be a constant ambiguity whether such a out bankers, and because he was unwilling to person was trading as a partner or as a private complicate the present subject with any quesindividual

. There was no pressing demand for tions relating to banking and currency. But such an extension of the law, and the House for his own part he saw no reason why bankers ought not to be asked to adopt that principle should be excluded. for the purpose of attaining merely barren consistency and uniformity. Nor should he re- The honourable member next proceeded to commend the House to adopt the law of com- the subject of Joint-Stock Companies, commandite, which was neither suited to the habits nor methods of the people of this country. prised in the 2nd Bill. He thought that if they could retain the old The state of the law with respect to jointlaw, making such changes as to adapt it to the stock companies was rather peculiar. They rising wants and growing necessities of society, seemed to have had the misfortune of hav. they would do much better than if they swept ing always been legislated for by persons in away the old fabric altogether. Neither was a state of great excitement. The first Act he satisfied to deal with the question of part- relating to them was “The Bubble Act," Dership by legalising loans made to the con- which was passed in the first paroxysm of cern, because in his opinion it was not the bu- excitement after the bursting of the South siness of the State to favour, by special legisla. Sea bubble. For 100 years after the passing tion, one mode of dealing any more than of that Act joint-stock companies in this another. The State should occupy an impar country were absolutely illegal. He mentioned tial position, and leave to individuals the choice these matters not because they were immediately of the mode in which they would deal or trade. relevant, but because they would throw light But if they facilitated the making of loans to on what was to be guarded against. It was partnerships, the State would give an undue only by very slow degrees that the law recogpreponderance to one mode over another, and nised the nature and character of these assostimulate perhaps the worst way of dealing- ciations. In the first year of her Majesty an that of carrying on business by temporary Act was passed which allowed them to sue and loans instead of on capital permanently invested. be sued, not in their corporate name, but in the The weight of legislation would thus be thrown name of their public officer. The next Act on the wrong side.

was the Joint-Stock Companies Act of 1844 ; But, on the other hand, it was not the duty it was the result of a report of a select comof a Government to prohibit persons, if they mittee, which seems to have deliberated in a chose to do so, from carrying on business by state of excitement not much inferior to that loans. He held that it was not the business of which prevailed in the time of George I. He the State to save men from the effects of their found the sections with such 'headings as own improvidence; but neither was it desira.“ amount and destination of the plunder," ble to facilitate the contracting of loans. He “condition of the victims,” “impunity of the therefore objected to a system purely of loans. offenders.” The whole evil complained of was this ; that He would next call attention to some extracts partners were liable to their last shilling or last from the report, to show the animus on which acre for debts to which they were not known that Act was founded. The committee divided at the time to be parties, and that the creditor these companies into three classes. First, could come upon property on the security of those which being faulty in their


nature which he never lent his money. That was the and founded on a miscalculation, could not by principle laid down in the case of Waugh and any possibility succeed ; secondly, those in Carter, and it was the opinion of some of the which, whether their object was good or bad, highest jurists, and amongst them Judge Story, the machinery was such that success was very that it would have been better if the case was doubtful; and third, those which were abso

lutely fraudulent in their constitution and never H. Bl. 235. intended to work at all. The committee ob



Law of Partnership, Limited Liability and Joint-Stock Companies, serve that with regard to the last class, the panies, in his evidence stated that the returns mere publication of the list of directors and which the Act required were worth nothing, shareholders wouid be a sufficient remedy to that the Act was very much evaded, and commeet every case of fraud, and that the first panies founded on mere men of straw. Such class only was beyond the reach of legislation. was the evidence of the registrar himself, and The Act which was introduced on that report if they compared it with the expectations of was an attempt on the part of the Legislature the committee, they would see how impossible by enactment to correct everything except a it was by any legislation to protect the public flagrant miscalculation in figures.

in a matter of this kind in which they were He would now see how far the performance able to protect themselves. kept pace with the anticipation, and how the The provisions intended to protect the public machinery broke down. The Act was the 7 & had been only mischievous and injurious. A 8 Vict. c. 110. Its first provision was that company might begin with a very small capital, there should be a provisional registration, and after registration it would be impossible to that is, that the promoters should register prevent them from increasing it. That was a their names and objects before they would be matter which ought to be entirely beyond the allowed to allot shares; between provisional control of Government. If they were to interand complete registration they were not per- fere so much in the internal regulations of mitted to deal in shares, or do any act except commercial undertakings they could not stop; of a temporary nature; they were to execute a they would at length be driven to take the deed which was to contain the eleven require- whole control out of the hands of the parties, ments of the Act and thirty-eight more of the and to yest it in the Board of Trade, or some Schedule, and be signed by at least one-fourth other Government department. The prestige of the shareholders holding one-fourth of the attached to these companies by a seeming asstock : after that they were entitled to com-sociation with the Government, by calling plete registration. The rest of the Act was themselves completely registered, give them a taken up with minute details as to the internal certain semblance of respectability which their government of the companies, provision as to own merits would not attain, and that can be a vast number of returns that were to be made, the only result of an attempt on the part of and for a register of shareholders—which has the Government to ascertain, by artificial returned out totally inadequate.

straints, the character of a commercial underLast year the Limited Liability Act was taking. The formal requisites may be compassed, which provided that a company hay- plied with by the honest, who do not require ing obtained a certificate of complete registra-them; but the fraudulent can easily evade tion under the Joint-Stock Companies Act them. should obtain the benefit of its provision when Having gone through the Acts which they the deed bad been executed by at least twenty proposed to set aside, he would next state what persons holding three-fourths of the capital the intentions of the Government were, and the and having paid up. 20 per cent. That was principles by which they would be guided, They now the state of the law; and as he asked proposed to repeal the Limited Liability Act them to change it, he was bound to show its of last Session. They entirely repudiated the disadvantages and difficulties. By provisional principle of the Joint-Stock Companies Act. registration it was intended to watch over the It was not in the power of the Government to childhood of these companies, until they at- prevent the institution of fraudulent companies, tained the toga virilis of complete registration; and he did not think it a very right principle like infants, they were allowed to contract only to embarrass a hundred honest bona fide men for necessaries. The result in practice had in a vain and futile effort to catch the hundred been most unfortunate. The public refused to and first. It was a principle which guided recognise this infancy. Some treated the com- men in their dealings with one another, that pany in this infant state as if it was a mere every man was to be deemed honest until the nullity, whilst others overlooked the provision contrary was proved, and they should adopt of the Act, and dealt with these companies as the same in dealing with associations which if they were fully formed, and the Act was were nothing but a collection of individuals, wholly set aside. The Act prohibited any With regard to the general nature of the redealing with shares, but that prohibition was strictions in former Acts, it would be observed directed to the Stock Exchange, but the Act of that they tended very much to produce delay, Parliament did not move them, and shares in and in these matters delays were dangerous. companies only provisionally registered were Before these companies were completely formbought and sold in defiance of it. The object ed, their rights and authorities were undefined. of the rule was, no doubt, good, but he thought Many abuses took place, and, as in the case of it would have been better not to allow these provisional committee-men, individuals found companies to come before the public at all they incurred liabilities they had never intenduntil they were able to undertake all their re-ed, and which would not have occurred if the sponsibilities, instead of giving them a kind of company could have been formed at once, and quasi existence. The many requirements of gone into action. All these restrictions must the deed were also a source of expense and be intended either to prevent fraud, which they trouble. With regard to the subscriptions to had no right to assume, or to ensure stability, the deed, the registrar of joint-stock com- which the Government could not do. The

Law of Partnership, Limited Liability and Joint-Stock Companies.


first restrietion was that a certain amount of · He had already observed that previous to capital should be paid up; he would admit the incorporation of a compaøy it was neither. that might be a wise precaution in the case of wise nor right to require any of those restraints a railway company where it was in the nature and safeguards which had been demanded on of a deposit on the purchase of an estate, and behalf of the public; and he now contended persons who came before Parliament for leave that the fact of a company's being actually to take the property of others should give un- formed with limited liability did not at all doubted security, but it was very different in strengthen the case in favour of such limitaother cases; the Limited Liability Act pro- tions. Why did Parliament assent to the vided that 20 per cent. of the capital should be principle of limited liability? Why, simply on paid up, and that a statutory declaration should the ground that the extent of liability ought to, be made. Now that provision might very much be matter of contract between parties wbo are embarrass a bona fide undertaking, but it pre- dealing with each other. The principles' on sented no difficulty to a fraudulent company. which the Act rested were freedom of contract, It was only necessary to make the declaration, and the exercise of the right of association as and there was no power to inquire into its far as was compatible with public safety and truth, and a fraudulent scheme got a kind of morality. Any right, the exercise of which spurious credit. It was often an advantage to was denied became a privilege, the very term a concern to start with a small capital in a privilege arising from the negation of natural mining undertaking, for instance, where the right. The restraints which he had mentioned outlay would be gradual. The existence of a generally rested on one of two ideas, the en. bad concern was often prolonged, whereas, if suring of the stability of the company and the it had a small capital, it would have been prevention of fraud. Now, was there anything wound up at once.

more to encourage fraudulence in limited than There was another restriction much in fa- in unlimited liability? He should say the conVOUT with some parties, who thought it abso- trary. Fraudulent people wished to get large lutely necessary that the House shonld fix the credit, and for that purpose the principle of amount of the shares. In the old Joint-Stock unlimited liability would be of more advantage Act there was no restriction of this kind. He to them than the contrary principle. Well, did not think it was any part of the business then, as to stability; was there any more rea-* of the Legislature to define whether the share son to doubt the stability of a company be. should be large or small, and he thought it cause it was limited, than there would be if it very desirable that in some cases they should were unlimited in its liability ? The two things be small, as there were many undertakings, which made up stability were character and parish and others, in which the poorer classes capital. Was the capital of a limited company would be glad to take shares. He would very necessarily less than that of an unlimited one? much regret if it should turn out to be the By no means. A limited company might bave pleasure of the House to exclude any portion a capital of a million, while an unlimited com- . of her Majesty's subjects from the benefit of pany might not be worth a thousand pounds, these Acts. The only argument urged against and in proportion as capital was raised with small companies was, that they would lead to facility by limited companies was the probagambling. They had no right to deprive one bility that the subscribed capital would be man of a benefit, because another man might larger than that of unlimited partners, the bor-, abuse the privilege. There was another ob- rowing capital less, and the concern more sérvation which he would wish to make; it secure. was a habit to talk as if incorporation was a Every man has a right to choose for himself favour and a privilege conferred on those com- between the two principles, and it was ill-adpanies, that as they came to ask for a favour, vised legislation which stepped in between him it was rigbt to impose any terms on them that and the exercise of that right. In his opinion were thought proper. He should protest the right course of the legislature with regard against such a notion Under a just Govern- to new companies was not to offer the slightest ment there ought to be no privilege in com- bhstruction to their formation, but to take care mercial matters, there could be no greater that when they had done wrong the Courts of injustice than to concede universal privileges Jastice should be armed with sufficient means to any particular form of association; but it of stopping roguery or extravagance. was not 80; incorporation was just as much He would now proceed to state the profor the benefit of the public as for that of the company; incorporation was a legal form; a company consisted of a number of individuals : migsion to introduce on this subject. if, therefore, a party sued them, he was liable The Bill which the Government proposed to to he defeated on the ground of misjoinder, introduce repealed the Joint-Stock Companies? but by their incorporation he was enabled to Act, and the Aet for its amendment. It also resue then under their corporate name. It was pealed the Limited Liability Act of last Session. a matter of procedare more than anything else, It had a double operation--a compulsory one, and it ought to be encouraged wherever the and a remissive one. The compulsory part of mischief was likely to arise,--that is, wherever the Bill extended to all partnerships for the such a company was likely to be a party to any purpose of gain or profit consisting of more legal proceedings.

than twenty members, it being thought that any


Law of Partnership, Limited Liability and Joint-Stock Companies. partnership which consisted of more than. The next point was the registration of sharetwenty members ought to be incorporated for holders. At present the registrar of jointthe benefit of the public, in order that any legal stock companies had to keep a register of shareproceedings in which it might be involved holders. He was sorry to say that the register might not be impeded by the number of mem- thus kept had become utterly untrustworthy, bers. The permissive part extended to all as- and that it would probably have to be given sociations having more than six members and up; and what he proposed on that subject less than twenty, and having gain or profit for was, that every company should be compelled their object; and to all associations not having to keep a register of its own shareholders, gain or profit for their object which consisted under a penalty in case of neglect, and that of upwards of six members. These last as- this register should be accessible to the public sociations might adopt it or not as they pleased. at all reasonable times, and should be regarded So that the effect of what he proposed was, as conclusive evidence as to who were and who that associations having gain or profit for their were not shareholders at any particular time. object, and consisting of more than twenty By this means they would get rid of all those members, must adopt the provisions of the embarrassing questions which had arisen hitherBill; that associations not consisting of more to in connexion with the winding-up of comthan six members, and having gain or profit panies. The companies would in reality be left for their object might adopt them or not; and to manage themselves. The state would, on the that all other associations, whether they were principle of this Bill, have nothing to do with of an educational or a religious character, or forcing upon those little republics a particular for whatever purpose they might be formed, if constitution, but having presented to them a patthey consisted of more than six members, tern, it would leave them to please themselves. would have a similar option.

One thing, indeed, would be required in referThere were two classes of persons who, he ence to publicity, namely, that a balance sheet regretted to say, were omitted from the opera- should be filed once a year in the office of the tion of the provisions of the Bill. It was con- registrar, stating certain items which were presidered desirable that the Government should scribed, and he thought this might fairly be confine themselves to an attempt to amend the demanded from companies who would be saved Joint-Stock Companies' Act, and to apply so much trouble and expense. And here he limited liability to large and small partnerships must notice a provision which would, he hoped, in a more effectual manner without entering on be found a great benefit to companies in disdifficult questions. It was not therefore pro- tress, namely, that one-fifth of the shareholders posed to extend the Bill to banking, though he of any company might apply to the Board of hoped the day would soon arrive when the works to inspect the affairs of the company at same law would apply to all; and the second their (the applicant's) own expense, and that exception was the case of insurance companies the board might, if they thought fit, after re-an exception which was made in deference ceiving such application, appoint an inspector to the opinion of the committee which sat in to inspect the affairs of the company and make reference to insurance companies two Sessions a report, such report to belong to the persons ago. Well, now, supposing a company to be who have paid the expense, and not necessarily in course of formation under this Bill, he would to be attended with any publicity. This prostate how it was to obtain complete registration. vision was borrowed from the New York code,

For this purpose a document would have to be with this exception, that under that code the signed, which was called in America “the cer. application for an inspection must be made to tificate of deposit,” but which under this Bill a Court of Justice. would be termed “the memorandum of as- It was also proposed to deal under this Bill sociation.” This document which must bear with the subject of the winding-up of companies the signatures of at least seven persons—the by the repeal of the existing Winding-up Act, minimum number who were to form a com- which had not worked very satisfactorily. A pany--would state the name of the association, company might be wound up, and in this Bill, whether it was limited or unlimited as regarded when it was unable to pay its debts, or when liability, the number of shares, &c., and after its being wound up was for the benefit of the the document had been filed, the company shareholders, which would be taken to be the would be incorporated for the purpose of suing case when three-fourths of the whole number and of being sued. The next step had refer- of shareholders, holding half the capital, had ence to the deed of settlement. Bye-laws had declared it to be so; also, when the company been prepared, which were called “the articles had not transacted any business for more than of the association,” and which were taken from a year, and when the number of shareholders the ordinary rules of joint-stock companies. was reduced to less than seven. The company In accordance with the principle adopted in re- would be considered unable to pay its debts ference to the railway clause, it would be com- when a judgment had been obtained against it petent to persons who had signed the “me and was unsatisfied after a certain period, or morandum of association " to adopt these bye- when notice of a debt had been given for three laws at once, in which case there would be weeks and the debt had not been paid. When scarcely, any expense; but if they desired a petition had to be heard, both parties would others, it would be open to them to make pro- appear before the Court, and the Court would posals for that purpose.

have power to order that the company should


Law of Partnership.Leases and Sales of Settled Estates Bill be wound up within a certain number of days | LEASES AND SALES OF SETTLED if the debt was not paid. This was a rather

ESTATES BILL. summary proceeding, but, as it was proposed to abolish the right of suing individual mem

This renewed Bill recites that it is expedibers of a company, he thought such a provisionen was justifiable. The amount of debt which

ent that the Court of Chancery should have was fixed upon to warrant such a proceeding

power in certain cases to authorise leases and

sales of settled estates where it shall deem that was 50l. ; and he thought that, if such an

such leases or sales would be proper and conamount could not be paid out of the property

the property sistent with a due regard for the interests of all of the company it must be the interest of all |

parties entitled under the settlement; and that: parties concerned that the affairs of the partnership should be wound up. The analogy of

it is also expedient that tenants for life of

land in possession should have power to grant the Bankruptcy Law bore upon the case under consideration.

agricultural leases thereof, at rackrent, for a The principle on which the concerns of individuals were taken out of their

reasonable period, to be binding on their own hands and placed in the hands of assig

successors. nees was that, in consequence of the inability

The proposed enactments, after the interto pay in full, the creditors had a common in

pretation clause are as follow :terest in them. In the present case, not only

2. It shall be lawful for the Court of Chanwould the creditors be formed into a quasi cor

cery in England, so far as relates to estates in poration, but the shareholders would be placed

England, and for the Court of Chancery in Ire

land, so far as relates to estates in Ireland, subin the same position. Besides a dividend to be

ject to the provisions and restrictions in this paid, there might also be a call to be made,

de, Act contained, to authorise leases of any settled and the principle of the Bankruptcy Law would then require a double application. On

estates, or of any rights or privileges over or

affecting any settled estates, for any purpose the whole, then, he thought it would be wise

whatsoever, whether involving waste or not, to deprive creditors of the power wbich they now possessed of suing individuals belonging

provided the following conditions be observed: to the corporation, but, in order to compensate First, every such lease shall be made to“ for that, a more summary proceeding was given take effect in possession at or within one against the corporation itself, the penalty of year next after the making thereof, and shall non-paymeat of a debt being nothing less than be for a term of years not exceeding for an the extinction of the company in its corporate agricultural or occupation lease 21 years, for capacity. The Bill also gave to companies the a mining lease, or a lease of water, water power of winding up voluntarily, after passing mills, wayleaves, waterleaves, or other rights a resolution to that effect. It was likewise pro or easements, 40 years, and for a building posed to give to existing companies the power lease 99 years, except only in cases where of bringing themselves under the operation of the Court shall be satisfied that it is the this Bill by means of a resolution agreed to by usual custom of the district and beneficial to three-fourths of the shareholders. Those parts the inheritance to grant building leases for of the Bill which had reference to new joint longer terms, and then not exceeding such stock companies would apply to all joint-stock term as the Court shall direct : companies after the Bill had been passed, so Secondly, on every such lease shall be rethat there would be one uniform law with re served the best rent, or reservation in the gard to joint-stock companies, whether formed nature of rent, either uniform or not, that before or after the passing of this measure. can be reasonably obtained, to be made pay

Before concluding, he wished to give some able half-yearly or oftener, without taking information in reference to the working of the any fine or other benefit in the nature of a Limited Liability Act since it was passed in the fine : last Session. The facts were these. The Thirdiy, where the lease is of any earth, number of companies provisionally regis coal, stone, or mineral, a certain portion of tered under the Limited Liability Act was 121, the whole rent or payment reserved shall be of which three only had obtained complete re. from time to time set aside and invested as gistration; the number of companies registered hereinafter mentioned ; namely, when and so before the passing of the Act, which had since long as the person for the time being entaken steps to become registered under it, was titled to the receipt of such rent is a person 13, of which only one had obtained complete who by reason of his estate, or by virtue of registration. One Irish company had availed any declaration in the settlement, is entitled itself of the Act; and the total result was that to work such earth, coal, stone, or mineral 142 companies had applied for, and eight had for his own benefit, one-fourth part of such obtained limited liability. He need hardly add, rent, and otherwise three-fourth parts therethat the fact that so few companies had been of; and in every such lease sufficient pro

formed was explained by the commercial crisis vision shall be made to ensure such applica· which had existed since the passing of the Act. tion of the aforesaid portion of the rent, by

the appointment of trustees or otherwise, as the Court shall deem expedient:

Fourthly, no such lease shall authorise the felling of any trees, except so far as shall be

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