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The Legal Observer,



"Still attorneyed at your service.”-Shakespeare.


SUMMARY OF LAW BILLS IN That seven or more persons may subPARLIAMENT.

scribe a memorandum of association and

form themselves into an incorporated comThe Government have lost no time in pany, with or without limited liability ; but bringing forward several important and not more than 20 shall associate, having beneficial measures for the consideration of gain for its object, unless registered under Parliament. In the foremost class we may this Act, or by Act or Charter. place the Law of Partnership-amendment The memorandum of association is to Bill, and the Joint-Stock Companies Bill. contain, These propositions are of great importance 1. The name of the company ; both to the Public and the Profession. In 2. Its objects; a subsequent article we have set forth the 3. The liability, limited or not; principal statements and explanations of 4. Amount of capital ; Mr. Lowe, who ably introduced the Bills, 5. Number of shares and amount of fully detailing the grounds on which these each share ; and measures are supported by the Govern- 6. The word “limited” is to be the last ment.

word in the name of the company. Great satisfaction was expressed in favour The company is to keep a register 1 of of the general principles of the proposed shareholders, with names and addresses ; Acts by Mr. Collier, Mr. Malins, Lord amount paid by each ; when entered as a Goderich, Mr. Cardwell, and Mr. J. G. shareholder; and when ceased. Phillimore. It appears highly probable, We come next to the Leases and Sales of subject to the consideration of the provi- Settled Estates Bill, to which we referred sions in detail, that the Bills will be speedily at the opening of the Session. It has been passed.

deemed useful to set forth the clauses of The Bill relating to the general Law of this Bill fully, and we have appended a few Partnership is very concise :-it merely notes relating to alterations effected in the proposes to enact that the advance of capi- Bill of last Session, but which have been tal to be used in trade or undertaking (not disregarded in the reprint. The clause being that of a banker) upon a contract that preventing persons who had applied to Parthe lender shall receive a share of the pro- liament for extended powers from the adfits, shall not of itself render the person vantages of this Act, can scarcely be demaking the advance liable to third persons fended on any just principle; but we ceras a partner.

tainly think that tenants for life, or other Again, that no contract for the remunera- persons entitled to the rents of estates, which tion of a servant or agent by a share of the may be sold under this proposed Act, ought profits shall, of itself, render such servant or agent responsible as a partner.

Should not this Register be kept in some The Joint-Stock Companies Bill

, after public office of convenient access, instead of exempting bankers and insurance Compa- the company's own office ? nies from its provisions, proposes

2 See p. 279, post. No. 1,457.



Law of Partnership, Limited Liability and Joint-Stock Companies. to be better provided for than they are in | liability. But it was clear, from the terms of the present Bill.

the Act itself, that it contained a temporary The Government Bill relating to the abo- element, and on that account, if on no other, lition of Tolls and the adjustment of Dues the measure of last Session must be considered on Shipping, will, we presume, receive the the whole subject was under the thorough re

one of a temporary nature. In the mean time, sanction of the House. Our shipping inte-view of the Government. The questions they rest should be relieved of all possible bur- had now to consider were two-how the printhens and by every possible means encou- ciple of limited liability could be applied to raged. The prosperity of the country private partnerships, and how the law relargely depends on the wise and efficient specting, joint-stock companies could be support of this branch of our national re- amended and improved. Two Bills, one relatsources and prosperity.

ing to private partnerships and the other to

joint-stock companies, were therefore prepared. So far regarding the measures of Govern

He should now proceed to explain, in the ment. We come now to other proposed first place, how the law stood with regard to amendments of the law.

private partnerships. They were very little inMr. Craufurd's proposed extension of the terfered with by the law of England, and they powers of the Courts of England to enforce were left very much as they stood at common by execution the judgments of the Courts law. The great grievance complained of was of Ireland and Scotland, and of the latter not the want of limited liability, strictly so Courts to enforce those of England, and called--that was to say, the want of a power each other, seems a necessary measure. with that creditor that he should not be liable

in a partner, known to a creditor, to contract The grounds of opposition do not appear to beyond a certain amount. It was rather the be satisfactory, and we hope the learned converse of that case which was the subject of member will persevere in his object. complaint-namely, that the dormant partner

The subject of the Ecclesiastical Courts, in a concern should be made liable, not merely it will be observed, is taken up by Mr. for the capital he embarked in it, but to the exCollier, instead of the Solicitor-General. tent of his entire property upon which the creMr. Collier proposes to divide the Testa

ditor had never given any credit at all. That mentary Jurisdiction of Doctors' Commons the question was how they should deal with it.

was the nature of the particular grievance, and between the Superior Courts of Common But there was another question arising out Law and the County Courts, -according of the present state of the law as affecting pri(we presume) to the amount in question. vate partnerships which had also to be consiBut where is the machinery in these Courts dered. The House was aware that by an Act to work the business thus proposed to be recently passed the usury laws were repealed, transferred ? 3

but when that Act passed there was probably Mr. Napier proposes to establish a de

not a single person who thought of its effect on partment of Public Justice :—in other laws, however, completely altered the position

private partnerships. The repeal of the usury words, to create a Minister of Justice, with of persons lending money to partnerships. It competent officers to watch over the admi- was the opinion of Baron Bramweli, who was nistration of justice ;-to prepare Bills for well acquainted with the principles of political Parliainent on behalf of the Government, economny, and still better, he would take leare and to examine all other Bills ;—and gene- to say, with the law of the land, as appeared rally to superintend their progress. This from his evidence before the Mercantile Law

Committee, that it was perfectly competent for is an “object devoutly to be wished.”

a person to lend money to a partnership, re

serving as much as 50 per cent. by way of LAW OF PARTNERSHIP,

penalty, with an agreement that it was not to be LIMITED LIABILITY, AND JOINT- enforced if he was paid a rateable share of proSTOCK COMPANIES.

fits of the concern for the loan. That view was also taken by Lord Eldon in exparte Hamper!

It followed from that it was at the present time On the 1st February Mr. Love moved reso- ship, and to receive part of the profits by way

possible to lend money to a private partnerlutions on which to found Bills for altering of interest on the loan. It was not the intenand amending the law of partnership, and for tion of her Majesty's Government to narrow or incorporating and regulating joint-stock companies and other associations. During the last to enter into these contracts. The point of

to limit the power which persons now possessed Session an Act had been passed through Par. view adopted by the Government was to take liament for the purpose of enabling joint-stock things as they stood,

and, if anything, to encompanies to enjoy the advantages of limited large rather than to narrow the powers already

3 It has since been announced that the Go. existing. It being the present state of the law vernment intend to introduce a Bill on this

117 Ves. 404. subject.


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


276 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 vest 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 hav- plied with by the honest, who do not require iog 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 probibition 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 objected, 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. 277 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 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 Aet 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 reas: of the Legislature to define whether the share son to doubt the stability of a company beshould 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 charaeter 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 have pleasure of the House to exclude any portion a capital of a million, while an unlimited comof 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 capitał 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 borabuse the privilege. There was another ob- rowing capital less, and the concern more servation 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 right 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: nient there ought to be no privilege in com- obstruction to their formation, but to take care mercial matters, there could be no greater that when they had done wrong the Courts of iæjustice than to concede universal privileges Justice should be armed with sufficient means to any particular form of association; but it of stopping roguery or extravagance. was not s0; 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 visions of the measure which he asked percompany consisted of a number of individuals; mission 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? bar by their incorporation he was enabled to Aet, and the Act for its amendment. It also restie them 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 naischief 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.

ihan twenty memhers, it being thought that any

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