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

of private partnerships that property and capital not embarked in the concern, and upon which money was never lent, was liable for the debts of the partnership, it remained to be considered how they should deal with that state of things.


decided the other way. What he proposed to do, therefore, was to introduce a measure which would have the effect of reversing the decision in the case of Waugh and Carter.

The law would then stand thus, that a man might become a dormant partner in a concern, and put a certain sum of money into it, without the risk of losing any money beyond the sum put in. The result would be that you would have in effect the system of commandite, without making any great innovation in your old law, and the system of loans, not carried on in the circuitous manner which he had described, but directly. Bankers were left out, not because he saw any good reason for doing so, but from respect to the former course of legislation in that House, which had been to leave out bankers, and because he was unwilling to complicate the present subject with any questions relating to banking and currency. But for his own part he saw no reason why bankers should be excluded.

The honourable member next proceeded to the subject of Joint-Stock Companies, comprised in the 2nd Bill.

The way would be to extend the present law of limited liability to these partnerships, and to say that any number of persons, however small (and some went so low as one person), should be formed into a corporation, and as such should have the privilege of limited liability. To that proposition he was not disposed to accede, and for this reason, that there was something incompatible and inconsistent between the character of a principal being a corporation whose liability was limited. There would be a constant ambiguity whether such a person was trading as a partner or as a private individual. There was no pressing demand for such an extension of the law, and the House ought not to be asked to adopt that principle for the purpose of attaining merely barren consistency and uniformity. Nor should he recommend the House to adopt the law of commandite, which was neither suited to the habits nor methods of the people of this country. 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 havthey 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," nership 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 on the wrong side.

name of their public officer. The next Act 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 very nature which he never lent his money. That was the principle laid down in the case of Waugh and Carver, and it was the opinion of some of the highest jurists, and amongst them Judge Story, that it would have been better if the case was

2 H. Bl. 235.

and founded on a miscalculation, could not by any possibility succeed; secondly, those in which, whether their object was good or bad, the machinery was such that success was very doubtful; and third, those which were absolutely fraudulent in their constitution and never 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 mere publication of the list of directors and shareholders would be a sufficient remedy to meet every case of fraud, and that the first class only was beyond the reach of legislation. The Act which was introduced on that report was an attempt on the part of the Legislature by enactment to correct everything except a flagrant miscalculation in figures.

panies, in his evidence stated that the returns
which the Act required were worth nothing,
that the Act was very much evaded, and com-
panies founded on mere men of straw. Such
was the evidence of the registrar himself, and
if they compared it with the expectations of
the committee, they would see how impossible
it was by any legislation to protect the public
in a matter of this kind in which they were
able to protect themselves.

He would now see how far the performance The provisions intended to protect the public kept pace with the anticipation, and how the 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, The prestige ments of the Act and thirty-eight more of the and to vest it in the Board of Trade, or some Schedule, and be signed by at least one-fourth other Government department. 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 restraints, the character of a commercial underturned out totally inadequate. Last year the Limited Liability Act was taking. The formal requisites may be compassed, which provided that a company hav-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. Having gone through the Acts which they should obtain the benefit of its provision when the deed had 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.


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


first restriction 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 company 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 who 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 convour with some parties, who thought it abso- trary. Fraudulent people wished to get large lutely necessary that the House should 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 very desirable that in some cases they should be small, as there were many undertakings, parish and others, in which the poorer classes would be glad to take shares. He would very much regret if it should turn out to be the pleasure of the House to exclude any portion of her Majesty's subjects from the benefit of these Acts. The only argument urged against small companies was, that they would lead to gambling. They had no right to deprive one man of a benefit, because another man might abuse the privilege. There was another observation which he would wish to make; it was a habit to talk as if incorporation was a favour and a privilege conferred on those companies, that as they came to ask for a favour, it was right to impose any terms on them that were thought proper. He should protest against such a notion. Under a just Government there ought to be no privilege in commercial matters, there could be no greater injustice than to concede universal privileges to any particular form of association; but it was not so; incorporation was just as much for the benefit of the public as for that of the company; incorporation was a legal form; a company consisted of a number of individuals; if, therefore, a party sued them, he was liable to be defeated on the ground of misjoinder, but by their incorporation he was enabled to sue them under their corporate name. It was a matter of procedure more than anything else, and it ought to be encouraged wherever the mischief was likely to arise, that is, wherever such a company was likely to be a party to any legal proceedings.

cause it was limited, than there would be if it were unlimited in its liability? The two things which made up stability were character and capital. Was the capital of a limited company necessarily less than that of an unlimited one? By no means. A limited company might have a capital of a million, while an unlimited company might not be worth a thousand pounds, and in proportion as capital was raised with facility by limited companies was the proba bility that the subscribed capital would be larger than that of unlimited partners, the borrowing capital less, and the concern more secure.

Every man has a right to choose for himself between the two principles, and it was ill-advised legislation which stepped in between him and the exercise of that right. In his opinion the right course of the legislature with regard to new companies was not to offer the slightest obstruction to their formation, but to take care that when they had done wrong the Courts of Justice should be armed with sufficient means of stopping roguery or extravagance.

He would now proceed to state the provisions of the measure which he asked permission to introduce on this subject.

The Bill which the Government proposed to introduce repealed the Joint-Stock Companies Aet, and the Act for its amendment. It also repealed the Limited Liability Act of last Session. It had a double operation a compulsory one, and a remissive one. The compulsory part of the Bill extended to all partnerships for the purpose of gain or profit consisting of more 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 for their object might adopt them or not; and that all other associations, whether they were of an educational or a religious character, or for whatever purpose they might be formed, if they consisted of more than six members, would have a similar option.

There were two classes of persons who, he regretted to say, were omitted from the operation of the provisions of the Bill. It was considered desirable that the Government should confine themselves to an attempt to amend the Joint-Stock Companies' Act, and to apply limited liability to large and small partnerships in a more effectual manner without entering on difficult questions. It was not therefore proposed to extend the Bill to banking, though he hoped the day would soon arrive when the same law would apply to all; and the second exception was the case of insurance companies -an exception which was made in deference to the opinion of the committee which sat in reference to insurance companies two Sessions ago. Well, now, supposing a company to be in course of formation under this Bill, he would state how it was to obtain complete registration. For this purpose a document would have to be signed, which was called in America "the certificate of deposit," but which under this Bill would be termed "the memorandum of association." This document which must bear the signatures of at least seven persons-the minimum number who were to form a company-would state the name of the association, whether it was limited or unlimited as regarded liability, the number of shares, &c., and after the document had been filed, the company would be incorporated for the purpose of suing and of being sued. The next step had reference to the deed of settlement. Bye-laws had been prepared, which were called "the articles of the association," and which were taken from the ordinary rules of joint-stock companies. In accordance with the principle adopted in reference to the railway clause, it would be competent to persons who had signed the "memorandum of association" to adopt these byelaws at once, in which case there would be scarcely any expense; but if they desired others, it would be open to them to make proposals for that purpose.

panies. The companies would in reality be left to manage themselves. The state would, on the principle of this Bill, have nothing to do with forcing upon those little republics a particular constitution, but having presented to them a pattern, it would leave them to please themselves. One thing, indeed, would be required in reference to publicity, namely, that a balance-sheet should be filed once a year in the office of the registrar, stating certain items which were prescribed; and he thought this might fairly be demanded from companies who would be saved so much trouble and expense. And here he must notice a provision which would, he hoped, be found a great benefit to companies in distress, namely, that one-fifth of the shareholders of any company might apply to the Board of Works to inspect the affairs of the company at their (the applicant's) own expense, and that the board might, if they thought fit, after receiving such application, appoint an inspector to inspect the affairs of the company and make a report, such report to belong to the persons who have paid the expense, and not necessarily to be attended with any publicity. This provision was borrowed from the New York code, with this exception, that under that code the application for an inspection must be made to a Court of Justice.

It was also proposed to deal under this Bill with the subject of the winding-up of companies by the repeal of the existing Winding-up Act, which had not worked very satisfactorily. A company might be wound up, and in this Bill, when it was unable to pay its debts, or when its being wound up was for the benefit of the shareholders, which would be taken to be the case when three-fourths of the whole number of shareholders, holding half the capital, had declared it to be so; also, when the company had not transacted any business for more than a year, and when the number of shareholders was reduced to less than seven. The company would be considered unable to pay its debts when a judgment had been obtained against it and was unsatisfied after a certain period, or when notice of a debt had been given for three weeks and the debt had not been paid. When a petition had to be heard, both parties would appear before the Court, and the Court would have power to order that the company should

Law of Partnership.-Leases and Sales of Settled Estates Bill



THIS renewed Bill recites that it is expedi

be wound up within a certain number of days | LEASES AND SALES OF SETTLED if the debt was not paid. This was a rather summary proceeding, but, as it was proposed to abolish the right of suing individual members of a company, he thought such a provision ent that the Court of Chancery should have was justifiable. The amount of debt which was fixed upon to warrant such a proceeding was 50l.; and he thought that, if such an amount could not be paid out of the property of the company it must be the interest of all parties concerned that the affairs of the partnership should be wound up. The analogy of the Bankruptcy Law bore upon the case under consideration. The principle on which the

concerns of individuals were taken out of their own hands and placed in the hands of assignees was that, in consequence of the inability to pay in full, the creditors had a common in terest in them. In the present case, not only would the creditors be formed into a quasi corporation, but the shareholders would be placed in the same position. Besides a dividend to be paid, there might also be a call to be made, and the principle of the Bankruptcy Law would then require a double application. On the whole, then, he thought it would be wise to deprive creditors of the power which they now possessed of suing individuals belonging to the corporation, but, in order to compensate for that, a more summary proceeding was given against the corporation itself, the penalty of non-payment of a debt being nothing less than the extinction of the company in its corporate capacity. The Bill also gave to companies the power of winding up voluntarily, after passing a resolution to that effect. It was likewise proposed to give to existing companies the power of bringing themselves under the operation of this Bill by means of a resolution agreed to by three-fourths of the shareholders. Those parts of the Bill which had reference to new jointstock companies would apply to all joint-stock companies after the Bill had been passed, so that there would be one uniform law with regard to joint-stock companies, whether formed before or after the passing of this measure.

Before concluding, he wished to give some information in reference to the working of the Limited Liability Act since it was passed in the last Session. The facts were these. The

number of companies provisionally registered under the Limited Liability Act was 121, of which three only had obtained complete registration; the number of companies registered before the passing of the Act, which had since taken steps to become registered under it, was 13, of which only one had obtained complete registration. One Irish company had availed itself of the Act; and the total result was that 142 companies had applied for, and eight had obtained limited liability. He need hardly add, that the fact that so few companies had been formed was explained by the commercial crisis which had existed since the passing of the Act.

power in certain cases to authorise leases and sales of settled estates where it shall deem that such leases or sales would be proper and consistent with a due regard for the interests of all parties entitled under the settlement; and that it is also expedient that tenants for life of land in possession should have power to grant agricultural leases thereof, at rackrent, for a reasonable period, to be binding on their


The proposed enactments, after the interpretation clause are as follow:

2. It shall be lawful for the Court of Chan

cery in England, so far as relates to estates in land, so far as relates to estates in Ireland, subEngland, and for the Court of Chancery in IreAct contained, to authorise leases of any settled ject to the provisions and restrictions in this affecting any settled estates, for any purpose estates, or of any rights or privileges over or whatsoever, whether involving waste or not, provided the following conditions be observed:

First, every such lease shall be made to take effect in possession at or within one year next after the making thereof, and shall be for a term of years not exceeding for an agricultural or occupation lease 21 years, for a mining lease, or a lease of water, water mills, wayleaves, waterleaves, or other rights or easements, 40 years, and for a building lease 99 years, except only in cases where the Court shall be satisfied that it is the usual custom of the district and beneficial to the inheritance to grant building leases for longer terms, and then not exceeding such term as the Court shall direct:

Secondly, on every such lease shall be reserved the best rent, or reservation in the nature of rent, either uniform or not, that can be reasonably obtained, to be made payable half-yearly or oftener, without taking any fine or other benefit in the nature of a fine:

Thirdly, where the lease is of any earth, coal, stone, or mineral, a certain portion of the whole rent or payment reserved shall be from time to time set aside and invested as hereinafter mentioned; namely, when and so long as the person for the time being entitled to the receipt of such rent is a person who by reason of his estate, or by virtue of any declaration in the settlement, is entitled to work such earth, coal, stone, or mineral for his own benefit, one-fourth part of such rent, and otherwise three-fourth parts thereof; and in every such lease sufficient provision shall be made to ensure such application 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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