PARTNERSHIP, LIMITED AND UNLIMITED LIABILITY.
Definition. PARTNERSHIP, in Political Economy, the voluntary association of two or more individuals for carrying on some business or undertaking in common, each deriving a certain share of the profits, and generally bearing a corresponding share of the loss arising therefrom.1
The term partnership is commonly applied to those smaller associations—consisting usually of less than six, and not more than twenty persons—in which the partners personally conduct their joint affairs: the term company being applied to those great associations conducted by directors and servants appointed by the body of the partners to act for them, the latter having no direct concern in the management of the company's affairs.
1. Partnerships, whether the number of partners be great or small, are founded on that principle of association to which most great results may be ascribed. There are but few industrial undertakings that can be advantageously carried on without the co-operation of different persons. Many of them require a greater amount of capital than is usually at the disposal of individuals; and they almost all require a combination of various capacities and talents. And hence the advantage of uniting together to effect a common purpose. By the union of funds a sufficient capital is obtained. And when it happens, as is often the case, that those who contribute funds are without the peculiar skill or knowledge required to carry on the business, there are
always parties to be found ready to supply this deficiency, and to contribute, as their share of the common stock, that science and practical knowledge2 which the others want, and which are indispensable in all undertakings. And the income of both parties being dependent upon, and proportioned to, the profits which the business yields, they have the most powerful motive to exert themselves, and to put forth all their energies. Nothing can be more beneficial than such an organization. It brings different classes of individuals into the most intimate relationship, elicits their peculiar talents, and makes them mutually serviceable. In a properly-constituted partnership or association, capital, science, and skill are blended in their due proportions; and by their combined action produce results that would otherwise be wholly unattainable.
It happens, indeed, that, like most other things, partnerships are sometimes productive of mischievous results. But these are occasioned either by their perversion or abuse. The public interest requires that the whole partners in a firm should be bound by the acts of any one of their number; so that the folly or fraud of a single partner may entail very serious consequences upon those associated with him. Generally, however, this is not an evil of frequent occurrence; and there can be no question that, both in a private and public point of view, partnerships are highly beneficial. And hence their multiplication. They have grown with the growth of commerce and industry,
1 Societas est contractus juris gentium, bona fidei, consensu constantis, super re honesta, de heredi et damni communione; quare inter se possunt omnes liberos habentes rerum suarum administrationem. (Voet. Comm., lib. xvii., tit. ii., § 1.)
2 Ita posse corpi societatem non dubitatur, ut alter pecuniam conferat, alter non conferat; et tamen lucrum inter eos commune sit, quia socii opera alieus pro pecunia valet. (Instit., lib. iii., tit. xxvi., § 2.)
Partnership. and have been at once a cause and a consequence of the extraordinary extension of the businesses carried on by their agency.
Leading principles in the law of partnership. To enter into anything like a full discussion of the law of partnership would very far exceed our limits. We shall therefore merely state a few of those leading principles with respect to it with which it is of importance that mercantile men, and the public generally, should be acquainted.
The mere consent of the partners, fixed and certified by acts or contracts, is quite sufficient to constitute a private copartnership; so that if two or more merchants, or other persons, join together in trade, or in any sort of business, with a mutual, though it may be unequal, participation in the profit and loss of the concern, they are in every respect to be considered as partners. If there be no provision to the contrary, each partner would share in the profits according to the value of his contribution to the stock of the partnership, whether it consist of money, goods, skill, or labour; and, under the circumstances supposed, each would share in the loss in the same proportion in which he would have shared in the profit, had there been any. But the proportion of gain or loss to be borne by the various partners may be varied in every possible way. No particular form of words or proceeding is necessary to constitute a partnership. It may be entered into either by an express written agreement, or by a merely verbal one. The former, however, ought in almost all cases to be preferred. The contract of copartnership should state the parties to it; the business to be carried on; the space of time the partnership is to continue; the capital, time, or skill which each is to bring into the common stock, or give to the business; the proportions in which the profit and loss are to be divided; the manner in which the business is to be conducted; the mode agreed upon for settling accounts at the dissolution of the partnership; together with the special covenants adapted to the circumstances of each particular case.
To constitute a partnership, there must be a participation in uncertain profits and losses; and the true criterion to determine whether a party be a partner or not is, to ascertain whether the premium or profit he receives is certain and defined, or casual, indefinite, and depending upon the accidents of trade. In the former case he is not, and in the latter he is, a partner. A participation in the profits of any business or adventure, without a participation in the losses, constitutes a partnership so far as to render the individual so participating liable to third parties for the engagements of the concern, though, as between the parties themselves, it may be no partnership. Persons acting merely in the character of servants in any undertaking, such as seamen in the whale or seal fishery, and receiving as wages a sum proportioned to the profits made by their employers, are not partners.
If an individual, by his own act or inadvertence, allow himself to appear to the world as a partner, he is precluded from disputing the fact, even though he have no interest in the profits. A partner who withdraws from a firm is liable for its debts should the remaining partners continue his name in the firm, though without his consent, unless he take the necessary precautions to show that he has ceased to belong to it. (See post.)
If there be no express stipulation as to the management of partnership business, the majority decide as to the disposition and conduct of the joint affairs of the firm; or if there be but two parties in a firm, one may manage the concern as he thinks fit, provided it be within the rules of good faith, and warranted by the circumstances of the case.
Partnership. The general duty of a partner is to keep in view, at all times and in all transactions, the interest and welfare of the partnership, by acting honestly and as a prudent man would conduct his own affairs. He ought to have no secrets apart from his copartners in matters connected with their common concern; and he ought carefully to abstain from engaging in any business or speculation, whether on his own account or with others, that would divert his attention from the affairs of the partnership, or would clash with, or be inimical to, its interests.
Partners may be avowed, ostensible, or dormant. In regard to the first two there is no difficulty; for whether a man be really a partner, or holds himself out to the public and passes as such, is immaterial in so far as his liability to the latter is concerned. And in the case of dormant partners—that is, of partners who participate in the profits of concerns without disclosing their names—they are as liable as the others the moment it is ascertained that they are partners; and they may be pursued for debts contracted when it was not known that they belonged to the partnership.
Partners may distribute their profits and regulate their affairs in any way they please among themselves; but they cannot by so doing limit, defeat, or elude their responsibility to others. Each partner, however small his share in the concern, is liable, in all ordinary partnerships, for the entire debts of the association. And it is for the advantage of the partners, as well as of the public, that such should be the case. It makes the former peculiarly sensitive in regard to each other's character and conduct, and cautious as to the nature of the transactions into which they enter; and it gives the latter that security to which they are entitled, and on which only they can place any reliance in dealing with the great majority of firms.
The act of one partner is not sufficient to bind the others, unless it relate to, and be connected with, the peculiar business carried on by the partnership: For it is only when they act with reference to the business of their respective firms that partners are to be considered as their accredited agents or delegates; and it is in such cases only that those who deal with them are entitled to rely on the security of the partnerships which they represent. It may sometimes, perhaps, be difficult to say whether a transaction into which a partner is willing to enter be so connected with the business of the partnership as to bind the latter. And in such cases third parties had better be cautious, and decline engaging in a doubtful transaction, unless they have special grounds for placing entire confidence in the partner with whom they are dealing, or have learned that his proceedings are known to, and will be sanctioned by, the firm. In matters which are clearly unconnected with the business of the partnership it is not in the power of one partner, unless under very peculiar circumstances, to bind the others. (Smith On Mercantile Law, 5th ed., cap. ii., § 5; Kent On the Law of Partnership, p. 37, &c.)
The powers of partners are very extensive. They may pledge or sell the effects of the partnership, or compound for its debts. And they may purchase such goods as they please, having relation to the business of their firms, provided there be no collusion between them and the sellers, and that no intimation has been made to the latter by the other partners that they will not be bound by the transaction. Partners are not bound by a contract entered into by one of their number as an individual only, and on his own account. But if it have exclusive reference to the business of the firm, the presumption is, that it has been entered into upon its account; and this presumption is not
1 A partnership in which all the profit is to go to one set of partners, and all the loss to the others, was called by the Roman lawyers a leone societas (societas leonina), from the lion, who, though assisted by other animals in his hunting expeditions, took all the prey to himself. (Phaedrus, lib. I., Fab. 5.)
to be disputed except by distinct and conclusive evidence. One partner cannot, as such, bind another by deed, except in bankruptcy.
Partners, though they should act in a fraudulent manner as respects their copartners, bind the firm in all matters connected with its peculiar dealings. But this rule will not hold unless the strangers or third parties with whom a fraudulent transaction has been concluded, have acted bona fide. Any knowledge of, or participation in, the fraud on their part will vitiate and upset the transaction, and relieve the partnership from its responsibility. And though the fraud were not really known to the third party, yet, if the circumstances were such as ought to have led a man of ordinary discernment to suspect there was something wrong—that the partner with whom he was dealing had no authority to act for the others, or that the transaction had a suspicious character—it would be set aside. In such cases, excess of negligence or stupidity has the same consequences as connivance or guilty knowledge. "There is no doubt," said Lord Mansfield, "but that the act of every single partner, in a transaction relating to the partnership, binds all the others. But there is no general rule which may not be infected by 'covin,' or by such gross negligence as may amount or be equivalent to covin; for covin is defined to be a contrivance between two to defraud or cheat a third." (Smith, ubi supra, p. 44.)
Parties have frequently been not a little surprised to find that they were, unknown to themselves, partners in bankrupt firms, and, as such, responsible for their debts. Nothing is more common than for books to be printed and published, the publisher taking the risk of the publication and defraying its cost, the author getting for his remuneration half the profits, should there be any, which is not often the case. This, however, is clearly a partnership transaction. And in the event of the failure of a publisher who has published a work in the way now stated, the printers, papermakers, binders, and others engaged in bringing it out, supposing their bills have not been paid, fall back upon the author, who, being a partner in the speculation, is bound to discharge their claims! Cases of this sort are not imaginary merely, but have occurred over and over again. This, indeed, is a matter in regard to which the writer of this article may truly say, "Haud inexpectus loquor." And such being the risks which authors who enter into engagements of this sort have to encounter, they will do well, before embarking in them, carefully to inquire into the character and position of the publishers with whom their interests are to be associated.
The authority of a partner is revocable; and it is fully established that a disclaimer of the authority of the partners in any particular transaction precludes the individual by whom it is made from binding his copartners. Even during the subsistence of the partnership one partner may to a certain degree limit his responsibility; and if there be any particular speculation or bargain proposed of which he disapproves, he may, by giving distinct notice to those with whom his partners are about to contract that he will not be concerned in it, relieve himself from the consequences. Such notice would rebut his prima facie liability. The partnership would be suspended quoad this transaction. Thus, if a partner draw, accept, or indorse a bill or note, he will, in all ordinary cases, thereby render the firm liable. But, to use the words of Lord Ellenborough, "it is not essential to a partnership that every partner should have such power; they may stipulate among themselves that it shall not be done; and if a third party, having notice of this, will take such security from one of the partners, he shall not sue the other upon it, in breach of such stipulation, nor in defiance of notice previously given to him by one of them that he will not be liable for any bill or note signed by the others." (Galway v. Matthew, 10 East, 264.) And so in other cases.
When one of the partners has been made liable for the debts of the firm, he must seek his remedy in a rateable contribution against the others. Should one party enter into a smuggling or other illegal transaction on the partnership account, the other partners are liable for the duties and the penalty; and it is optional with the Crown to proceed against the real delinquent only, or against his partners. A bookseller or newspaper proprietor is answerable for the acts of his agent or copartner, not only civilly, but also criminally.
A partnership may be dissolved by the effluxion or expiration of the time during which it was originally agreed that it should continue. When it is formed for a single transaction, it is at an end as soon as it is completed. Partnerships may also be dissolved by death, agreement, bankruptcy, outlawry, &c. A court of equity will interfere to dissolve a partnership if a partner evince such gross carelessness or misconduct as would be ruinous to the firm, or would defeat the object for which the partnership was formed; or when a partner becomes insane, or is in such a state of mind as to render him permanently incapable of transacting the peculiar business of the firm; or where a partnership is formed for an impracticable purpose. Indeed, in all cases where even a partnership may be dissolved without the interference of a court of equity, it may be most prudent, if the dissolution be opposed by one or more of the partners, to file a bill praying a dissolution and account, and an injunction against using the partnership name.
When a partnership is dissolved by agreement, or one of the partners withdraws from it, public notice of the dissolution should be given in the London Gazette, and a specific intimation of the circumstances should be sent to all individuals accustomed to deal with the firm. Where such intimation has not been sent, an individual withdrawing from a firm may be made liable to third parties after he has ceased to have anything to do with it. He should also take care that his name is struck out of the firm; for if it be allowed to remain in it, strangers may suppose that he is still one of the partners, and he may thus be rendered responsible to them. A dormant partner, however, whose name has never been announced as belonging to a firm, may withdraw from it at pleasure without taking any step to disclose the dissolution of partnership.
It would, however, be expedient, in the view of getting rid of the serious inconveniences to which partners withdrawing from firms are sometimes subjected, and still more, of giving to the public that authentic information to which they are entitled, that the names of all partners in all partnerships, whether great or small, should be periodically published, and hung up in their places of business. Those who have to transact with firms, being in this way made aware of the individuals with whom they are really dealing, would act accordingly. But at present nothing may be known of these matters, or, if known, it may be by a few only; and there is no security whether, if inquiries were made regarding the matter, they would be truly answered. It is not by any means uncommon for firms to be continued under certain names long after the parties who bore them have ceased to exist, and without their having left either descendants or representatives of any sort in the business. And the designations A. B. & Co., A. B. C. & Co., and such like, are often assumed when in truth the Co. is a mere fiction. In these and similar cases the public is apt to be deceived, and to suppose that it is dealing with certain parties, when, in fact, it is dealing with totally different parties. But as such deceptions and ambiguities are uniformly mischievous, they ought to be put an end to, and firms proclaimed to be what they really are.
We therefore are disposed entirely to approve of the principle of the bill introduced into Parliament during the session of 1858 (by Lord Goderich) for the compulsory registration of the partners in partnerships. The clamour that was raised against it was most unreasonable. It could make no improper disclosures; for if a man be ashamed of being in a partnership, the sooner he leaves it the better it will be for himself and all concerned. Neither did it interfere in any manner of way with the freedom of industry or of association, or lay any restriction on one thing or another. Its sole object was to let in light on a few dark places; to show who Messrs A. B. & Co. really were. It eliminated fictitious names, and disclosed real and sleeping partners; but it did nothing more. It made no suggestions and gave no directions. And we have yet to learn that any wrong could be done to any honest man by its disclosures, while the benefits of which they would be productive are many and obvious. We have no doubt that some measure having the same objects in view will be eventually carried. It is difficult to suppose that it should be objected to, except by those who desire to be in the dark because it affords greater facilities for the carrying out of sinister projects.
When the joint debts of a firm are paid, and the property duly distributed among the partners, the dissolution may be said, in a general sense, to be accomplished. If any one of the firm be guilty of a breach of duty in misapplying the effects before the concern is finally wound up, the proper course is, to apply to the Court of Chancery to appoint a manager.
Within a reasonable time after the death of a partner, the survivor or survivors must account to the representatives of the deceased; and if not willing to do so, a court of equity will compel him or them. In taking partnership accounts at the death of a partner, they must commence with the last-stated account, or, if there be none such, with the commencement of the partnership; and they must end with the state of the stock at the time of the partner's death, and the proceeds thereof until it be got in.
No notice is necessary to third parties of the death of a partner; the partnership is dissolved, and all liabilities for subsequent acts cease. The surviving parties are to be sued alone for the partnership liabilities and obligations, for which they are liable to the full extent. But they are not liable for the separate debts of the deceased partner, unless, after payment of the joint debts, they have a surplus of partnership effects in their hands.
Upon a dissolution by death, if the joint effects be insufficient to pay the partnership debts, the separate estate of the deceased partner, if he have any, is liable for the deficiency.
The statements now made may probably be sufficient to give our readers a tolerably distinct notion of the formation of partnerships, and of the more important rights, duties, liabilities, &c., arising out of such institutions. Those who wish to go deeper into the subject may consult Collyer's Practical Treatise on the Law of Partnership; Chitty's Commercial Law, vol. iii., pp. 22-269; Woolrych On Commercial Law, pp. 296-317; Smyth On Mercantile Law, 5th ed., pp. 19-56; &c.
II. Companies.—By a company, in commerce and the arts, is meant a copartnership or association of sundry (in Great Britain, at least seven) persons united together for the prosecution or carrying on of some lawful business or pursuit. The capital or joint stock of a company is greater or less according to circumstances; but whatever may be its amount, it is uniformly raised by the issue of such a number of shares of such magnitude as those interested may think expedient; the individuals enrolled in the books of the company as the holders of these shares being its partners. Owing, however, to the latter being in most instances very
numerous, living at considerable distances from each other and being commonly engaged in other pursuits, it is impracticable for them personally to conduct the company's affairs. These are, in consequence, entrusted to the management of a board of directors, elected by, and responsible to, the shareholders. The latter, in fact, can do nothing individually. All their resolutions are taken in common, and are carried into effect by the directors they have chosen, and their officers. "In a private copartnership," says Adam Smith, "no partner, without the consent of the company, can transfer his share to another person, or introduce a new member into the company. Each member, however, may, upon proper warning, withdraw from the copartnership, and demand payment from them of his share of the common stock. In a joint-stock company, on the contrary, no member can demand payment of his share from the company; but each member may, without their consent, transfer his share to another person, and thereby introduce a new member. The value of a share in a joint-stock is always the price which it will bring in the market; and this may be either greater or less, in any proportion, than the sum which its owner stands credited for in the stock of the company." (Wealth of Nations, p. 333.)
According to the common law of England, all the partners in joint-stock companies, without regard to the magnitude of the shares held by them, are jointly and individually liable, to the whole extent of their fortunes, for the debts of the companies. They may make arrangements among themselves limiting their liabilities with respect to each other; but unless established by authority competent to set aside the general rule, the partners are all indefinitely liable to the public. In some instances, however, Parliament interfered to limit the responsibility of the shareholders in joint-stock companies to the amount of their shares. And the act 6th Geo. IV., c. 96 empowered the Crown to grant charters of association to companies, the partners of which might be made liable to such an extent, and subjected to such regulations, as might be deemed expedient. And hence charters were sometimes granted for the purpose merely of enabling companies to sue and be sued in the courts of law, in the names of their officers, without in anywise limiting or affecting the liability of the shareholders to the public. Such limitation was not to be implied by the grant of a charter, and was not held to exist unless it were distinctly set forth.
It is much to be regretted that the liability of the shareholders has been still further interfered with, and that, in this respect, a very serious inroad has been made on the old law of the country. The act of 1855 (the 18th and 19th Vict., c. 133) authorizes the establishment of companies for the carrying on of most descriptions of businesses (banking and insurance were excepted), the liability of the partners in which may be limited to the amount of their shares. And hence it results, that in all cases in which these have been fully paid up, the partners are relieved of all responsibility, and are no longer liable for anything. Though the bankruptcy of the companies to which they belong may occasion the ruin of thousands, they cannot be called upon to contribute a single farthing to the relief of distresses that have most probably been caused by their misconduct!
Well might the highest authority who can be appealed to on such subjects charge this system with injustice; for, as he observes, "in the case of the insolvency of a concern, it removes a portion of the loss, which must be borne by some party, from those who have voluntarily engaged in the concern, who have had the means of watching and controlling its progress, and who would have been the sole participants in the benefits of its success, for
Partnership. the purpose of throwing it upon those who have had no means of insight into the state of the concern, no power over its management, and no share in its advantages. The commandite partners may have embarked a very small share of their property in the concern, and must, therefore, be very slightly injured by its failure; whilst those to whom it is indebted may be very seriously injured, even to the extent of ruin.1
Defective state of the law in regard to joint-stock companies. Besides being vicious in principle, the law under which joint-stock companies are established is not a little confused and contradictory. Speaking generally, it may be said to be embodied in the act of 1856, the 19th and 20th Vict., c. 47, as amended by the act of the following year, the 20th and 21st Vict., c. 14. In the event, however, of a company being formed which requires peculiar or extraordinary powers,—such as the right to make roads or canals, to take up streets that gas or water pipes may be laid, and such like proceedings,—recourse must still be had to Parliament. But except in cases of this sort, the acts referred to are sufficient. And all partnerships or companies for ordinary industrial purposes, if they consist of more than twenty partners, must be established or registered under these acts, and made conformable to them; while, if they consist of seven and under twenty partners, they may be so established or registered; and in either case the liability of the partners may be limited to the amount of their shares, or be made or kept indefinite, as they may judge best. In like manner, banking companies with more than ten partners must, and those with seven and under ten may, be established, and must be registered under the act 20th and 21st Vict., c. 49; but, as already stated, the liability of the partners in such companies was not limited by the acts referred to. In addition to the clauses in the acts now mentioned as regulating the constitution of new and modifying that of old companies, there are others which relate to their voluntary and compulsory winding-up, their bankruptcy, &c. And, whether it were intended by Parliament or not, the effect of these statutes has been materially to modify the former indefinite liability of the partners in ordinary joint-stock companies. These associations have been, by a sort of legislative hocus-pocus, metamorphosed into incorporations; so that their funds only are liable to be taken in execution by their creditors. The rights of the latter have, in truth, been sacrificed without compensation or equivalent of any sort. A creditor cannot now, as he could have done three years ago, pounce upon any shareholder he pleased, and pursue him for payment of his debt, leaving to the shareholder to seek an indemnity from his copartners. When the funds of a company, supposing the liability of the partners to be unlimited, are insufficient to make good its engagements, a petition is presented to the Court of Chancery praying to have the company wound up. On this being done, the creditors can take no farther steps in the matter, but must wait the result. The court may order calls to be made sufficient to pay the debts due by the company. But this is always a very slow process; and if the creditors get paid in the end, which may be doubtful, it can only be after they have been kept out of their money for lengthened periods, most probably for a considerable number of years.2
We do not suppose that regulations having such consequences are likely to be permanent. Their nature and influence were not declared, and were indeed very imperfectly known, and that only to a few members, when they were before Parliament; but the longer they are maintained, the
more mischievous will they be found to be. It is not going too far to say, that the present state of the law in regard to the constitution, winding-up, and bankruptcy of joint-stock companies is more than discreditable, that it is disgraceful to the country. Had its object been to introduce fraud and recklessness into their constitution and management, and delay and expense into the legal proceedings to which they may give rise, it is doubtful whether it could have been materially improved.
Partnership. But supposing that joint-stock companies are properly organized, that the liability of the partners is unlimited, and that creditors have every facility given them for getting payment of their debts, still there are only certain varieties of undertakings to which they can be advantageously applied. To insure a reasonable prospect of success to a company, the undertaking should admit of its being carried on according to a regular systematic plan. The reason of this is sufficiently obvious. The business of a great association must be conducted by factors or agents; and unless it be of such a nature as to admit of their duties being clearly pointed out and defined, the association would cease to have any effectual control over them, and would be in great measure at their mercy; and, however conscientious and anxious to do their duty, they want the powerful motives to act vigorously, prudently, and economically, by which private individuals engaged in business are actuated. "Like," says Adam Smith, "the stewards of a rich man, they are apt to consider attention to small matters as not for their master's honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail more or less in the management of the affairs of such companies." It also not unfrequently happens that they suffer from the bad faith, as well as the carelessness and extravagance, of their servants; the latter having in many instances endeavoured to advance their own interests at the expense of their employers. Hence the different success of companies whose business may be conducted according to a nearly uniform system, and those whose business does not admit of being reduced to any regular plan, and where much must always be left to the sagacity and enterprise of those employed. All purely commercial companies trading upon a joint stock belong to the latter class. Not one of them has ever been able to withstand the competition of private adventurers; they cannot subject the agents they employ to buy and sell commodities to any effectual responsibility; and from this circumstance, and the abuses that usually insinuate themselves into every department of their management, no such company has ever succeeded, unless when it has obtained some exclusive privilege or been protected from competition.
And even with these advantages, such is the negligence, profusion, and peculation inseparable from the management of great commercial companies, that those that have had the monopoly of the most advantageous branches of commerce have rarely been able to keep out of debt. To buy in one market; to sell with profit in another; to watch over the perpetually occurring variations in the prices, and in the supply and demand of commodities; to suit with dexterity and judgment the quantity and quality of goods to the wants of each market; and to conduct each operation in the best and cheapest manner, requires a degree of unremitting vigilance and attention which it would be visionary to expect from the directors or servants of a joint-stock association. Hence it has happened, over and over again, that branches of commerce which proved ruinous
1 From a paper drawn up by Lord Overstone when the subject of limited liability was first mooted in 1837. Subsequent experience has confirmed the accuracy of his lordship's views.
2 Wordsworth's New Joint-Stock Company Law of 1856 and 1857, passim.
to companies have become exceedingly profitable when carried on by individuals.
"The spirit of monopolists," to borrow the just and forcible language of Gibbon, "is narrow, lazy, and oppressive. Their work is more costly and less productive than that of independent artists; and the new improvements so eagerly grasped by the competition of freedom are admitted with slow and sullen reluctance in those proud corporations, above the fear of a rival, and below the confession of an error."1 (Memoirs of his own Life, Miscellaneous Works, i., p. 49, ed. 1814.)
But though in all respects unsuited for the prosecution of ordinary industrial pursuits, whether belonging to agriculture, manufactures, or commerce, there are, as stated above, various undertakings for which joint-stock companies are peculiarly well fitted, and for which, indeed, they appear to be indispensable. The railways and canals which intersect most parts of the country; the docks and warehouses in our great seaports; the gas-works and water-works with which almost all our towns, whether great or small, are provided; and the greater portion of the public buildings and institutions by which they are embellished and the citizens amused and instructed, owe their existence to joint-stock companies. They are works that could not have been undertaken or completed except by the united capital and energies of great numbers of individuals; and being for the most part conducted on fixed principles, and according to a uniform system, their management, though not generally productive of much advantage to the shareholders, has, on the whole, been creditable to those concerned. It is not easy, indeed, to overrate the advantages which this country has derived from joint-stock associations, when applied to proper objects, and conducted by men of probity, skill, and caution.
The question in regard to the suitability of joint-stock companies to conduct the business of banking has been frequently agitated, and is one of some difficulty. But as we have already treated this question at considerable length in the article MONET, it is needless to resume the discussion in this place. Here it will be sufficient to observe, that much depends on the regulations under which joint-stock banks may be placed. And supposing that the unlimited liability of the partners is maintained and easily enforced, and that the bad faith or gross mismanagement of the directors is visited with suitable penalties, it is probable that the principal objections to joint-stock banks would be either removed or greatly diminished.
Partnerships with limited liability have been established in France, in the United States, and in other countries. In most cases they are subjected to peculiar provisions, but otherwise they may be instituted in a great variety of ways. Thus the responsibility of the partners may be limited to the amount of the sums which they have respectively contributed to the common stock, or to some multiple of these sums; and the power of the partners to interfere in the management of the company may be very variously regulated. The French call associations of this
sort, partnerships en commandite. They consist of partners, or commanditaires, who are responsible only for the amount of their shares, and of a gérant, whose liability is unlimited, and who, at the same time that he is independent of the partners, has the entire management of the concern.2 These institutions have existed in France for a lengthened period, but it is only of late years that they have been widely diffused. Latterly, however, their increase has been such that it was stated in a speech made in the Corps Legislatif in 1856, that more societies en commandite are now established in a single year than had formerly been established in half a century or in ten years of the reign of Louis Philippe. And this extraordinary increase of these societies, and the abuses of all sorts with which vast numbers of them have been infected, have attracted a large share of the public attention to their constitution, and occasioned various efforts for its improvement. But it was admitted on all hands that, down at least to 1856, the efforts referred to had been wholly ineffectual for any good purpose, and that the public was very often defrauded by the fallacious representations that were put forth in regard to the state of partnerships, by the declaration of dividends when, in fact, there was nothing to divide, and all those fraudulent devices of which we have recently had such extensive experience. And such has been the influence of this state of things, that, despite the many prejudices in favour of the system, it is believed by some high authorities that its entire suppression would be desirable.
In the meantime, however, a new law, which was the subject of a great deal of discussion, was passed in 1856 (promulgated 23d July) for the regulation of partnerships en commandite. But though it be in various respects an improvement on the law which it superseded, there are no good grounds for supposing that either this act, or that any other possible act, will be able to prevent abuse. It limits the amount of the shares according as the capital of the society is above or below 200,000 francs; it directs that one-fourth part of the capital shall be paid up before the business for which it has been formed can be undertaken; and it vests the entire conduct of the business, whatever it may be, in the gérant, or manager chosen by the partners. Inasmuch, however, as it has been found that M. les gérants have very frequently issued the most deceptive statements in regard to the companies to which they are attached, a committee of surveillance, consisting of five members, is to be chosen in each partnership, who are to verify les livres, la caisse, le portefeuille, et les valeurs de la société; and the gérant and the committee of surveillance are to be subjected to very severe penalties if they knowingly emit any false representations of the state of the society. They must be sanguine indeed who suppose that a clumsy contrivance of this sort can have any effect, unless it be to multiply all sorts of abuses, to increase "le grand nombre de mauvaises sociétés en commandite" that existed in France when it was established. And such, we are assured, is the case. What was bad in these societies in 1856 is much worse in 1858.3
The French seem to suppose that by making the gérant
1 The Abbé Morellet has given, in a tract published in 1769, Essais de la Réponse de M. N., pp. 35-38, a list of 55 joint-stock companies for the prosecution of various branches of foreign trade, established in different parts of Europe since 1600, every one of which had failed, though most of them had exclusive privileges. Most of those that have been established since the publication of the Abbé Morellet's tract have had a similar fate.
2 Exclusive of the societies or partnerships referred to above, there are in France Sociétés Anonymes, which are nearly identical with our incorporated companies, and Sociétés en Nom Collectif. The latter are ordinary partnerships, in which the partners are jointly and severally liable to the utmost extent for the debts of the partnership.
3 We borrow the following statements from a paper of the 20th March 1858:—"Companies en commandite are giving a good deal of occupation to the courts of law here, just as directors of banks are doing in London, and the revelations that are made respecting them are well worth the consideration of that very numerous portion of the English commercial world which is interested in French speculations. Within the last few days the Tribunal of Correctional Police has condemned one honest gentleman (gérant) of the name of Damonten to imprisonment and fine, for having swindled the unfortunate shareholders of the 'Compagnie Parisienne des Equipages de Grande Remise' out of L.20,000 in cash and shares, having plunged them into debt to the amount of L.80,000, and having squandered all their capital, amounting to L.320,000. To be sure, he had what he called an 'idea,' which was to get up the company in shares; but
indefinitely responsible to the public, and independent of the company, they will obtain at one and the same time the advantages of individual enterprise and economy with the limited liability of the partners. But while these results are all but incompatible, the attempt to combine them seldom fails to have others that are highly pernicious. A manager who is really independent, and may conduct a company as he pleases without let or hindrance on the part of its members, is extremely apt to conduct it with a view mainly to his own interests, how much soever they may be at variance with those of his nominal constituents. To obviate this risk, the partners most commonly endeavour to select a manager on whose concurrence with, or subservience to, their views they think they may depend. And supposing them to succeed in this object, all the advantages said to be derived from the independence of the manager are at an end, and he becomes a mere instrument for carrying out the views of a clique of irresponsible partners. Hence in very many cases the gérants are in reality mere men of straw, directed by the disguised but well-understood hints or commands of the leaders of the association, who, secure in their non-liability, are enabled to gamble on a large scale, and to engage in any sort of adventure.
The limited liability companies established in this country are relieved from the foppery of legislation now adverted to. Except in the license given them to contract an unlimited amount of debt, without being liable for more than a limited and, it may be, an inconsiderable amount of shares, they do not in other respects differ from ordinary companies. They are managed by boards of directors, whose duties are the same in their case as in that of others.
In countries like France, where the people are mostly in narrow circumstances, and unaccustomed to, and afraid of, speculative enterprises, there may perhaps be some ground for permitting the formation of partnerships en commandite. And if they were confined to undertakings that admitted of being carried on according to a system of routine, such as railways, canals, fire and life insurances, gas-works, and so forth, we do not know that they would be open to much objection. But in a country like this, where capital is abundant, and where all enterprises, however hazardous, that promise anything like a reasonable return are eagerly undertaken, all extraordinary inducements to make capitalists come forward are unnecessary, and therefore objectionable. We admit, indeed, that in the case of companies of the special class now alluded to, though nothing be gained, there is no great hazard of much being lost by the share-
holders being endowed with the privilege of limited liability. Such companies are not easily perverted to improper purposes; and though the capital of the shareholders may be unprofitably expended, yet, as it is most commonly laid out on visible, permanent, and sometimes valuable works, there is a fund on which the creditors, in the event of the concern failing, may fall back. But modifying circumstances of this sort have very rarely any place in companies formed for conducting ordinary industrial or commercial businesses. In their case the entire capital of the association may be lost or embezzled, without a farthing being left to the creditors. And it is, moreover, if anything can be, a contradiction and an absurdity to suppose that ordinary industrial pursuits can be so well managed by great associations of any sort, whether the partners be indefinitely responsible or not, as they will be by individuals or small associations. The latter act on their own account, and reap all the advantages of superior skill, attention, and economy, at the same time that they are indefinitely responsible for all the losses they may incur, and for all the mistakes into which they may fall, whether in the contrivance or the execution of their projects.
But though great public companies be unsuitable for the conduct of all save routine businesses, the fair presumption, or rather we should say, the certainty is, that those in which the responsibility of the partners is limited, will be much more unsuitable, and more productive of mischievous results, than those in which there is no such limitation. It must, indeed, be conceded, that despite the heavy responsibility under which the partners in ordinary associations or partnerships now act, they too often display an inexcusable degree of foolhardiness. But it is probable that the recent experience of the ruin that may result from placing too much confidence in directors will lead to an improvement in this respect, and that the character and conduct of these functionaries will be more carefully inquired into. Independently, however, of this circumstance, those who compare the number of associations which have been ruined by the bad faith, incapacity, or mismanagement of certain sets of directors, and the carelessness and misplaced confidence of others, will, after all, find that they bear but a small proportion to the total number of such associations. Bankruptcy and insolvency, though treated with infinitely too much indulgence, are still, speaking generally, very serious calamities; and, except when the partners have associated for sinister purposes, or when they have an overweening confidence in their managers, they seldom fail to inquire into the condition of the association, and to adopt such measures as may be judged needful to
he made the shareholders recompense him for the 'idea' by a grant of paid-up shares to the amount of L.60,000. Part of the operations of the company was to buy up small livery stables; and the gérant made purchases in his own name, and sold them to the company for considerably more than he paid for them: in one case he made the company give him L.60,000 for what cost him L.35,000. The same tribunal has also had to condemn the gérants of another company, called the 'Lignonne,' which professed to make paper from wood: its nominal capital was L.160,000, and of that sum the gérants took L.40,000 for a patent they brought into the concern, while they sold for their own advantage, and for whatever they would fetch, L.40,000 worth of shares, and coolly embezzled all the money the shareholders paid in, and all that could be borrowed. In another case before a tribunal, it appeared that a brace of knowing gentlemen had entered into an arrangement with some bankers to palm off on the public, for L.280,000 or L.320,000, some forests and mines in some outlandish region on the banks of the Danube which they had purchased for L.40,000. In another case, it appeared that the gérants of a mining company near Aix-la-Chapelle deliberately sold to their shareholders mines for L.100,000 which they were afterwards obliged to admit were worth only L.60,000. It would be easy to cite other cases of recent occurrence in which revelations not less startling have been made; but these few will suffice to enlighten the public. It must not, however, be forgotten that a case more scandalous than any of them has yet to be brought before the courts—that of M. Prost, of Discount Bank notoriety, who has defrauded his shareholders of many millions (of francs), and who has taken to flight. By the way, these shareholders had a general meeting a few days ago, and after a good deal of most vehement abuse of Prost and his 'Conseil de Surveillance,' they nominated a committee of five of their body to make a searching investigation into their affairs, in order to ascertain precisely to what extent they have been robbed.
"Other companies en commandite there are which, though not falling or likely to fall into the hands of justice, have subjected the shareholders to grievous loss. I refer to those of which the shares during the speculating mania brought enormously high premiums, but which have now fallen to their true value. Thus the shares of the Messageries Imperiales once obtained 1510 francs; they are now at about 550 francs. The shares of the company 'des Petites Voitures' were, shortly after being issued, at 210 francs; they are now to be had for 40 francs. The shares of the Union Company once sprung up almost at a bound from 395 francs to 500 francs; and 65 francs is about the present quotation. People at one time were very glad to give 760 francs for shares in the Franco-American Navigation Company; now they can have as many as they like for 30 francs. The Amalgamated Gas Company shares at one time were done at 1120 francs; yesterday they were at 720 francs. And the difference between the past and the present value of the shares of the famous Credit Mobilier is known to everybody."
improve its situation and prospects. This cautious surveillance is, of course, less manifested in great associations, where ordinary individuals feel that their efforts are apt to be of little avail; but even in their case it is always forcing itself into notice, while in smaller associations, or those comprising comparatively few partners, each being fully alive to his responsibility, exerts himself to obviate extravagance or mismanagement in the conduct of the business, and to make it a source of profit.
Without, however, insisting farther on these considerations, if parties will every now and then be careless of their interests, and forget or decline to adopt the necessary precautions to guard against abuse and loss when everything they have is staked on the result, their carelessness, it is obvious, will be immeasurably increased when they may limit their liability at pleasure, and speculate without any fear of the consequences. Can any one doubt that, under such circumstances, wild projects of all sorts will be very greatly increased; and that the number of those extensive bankruptcies which are productive of so much misery will be largely augmented? To suppose the contrary is to suppose what is plainly contradictory. It is equivalent to supposing that a man cares as much for £1000 as for £5000 or £10,000, or any greater sum; or is as anxious about a small part as about the whole of his fortune, how large soever it may be.
It is obvious too, on the slightest consideration, that the facilities for organizing fraudulent and bubble companies have been greatly extended by the new system. A few half-employed attorneys, half-pay officers, and men upon town, with abundance of time on their hands and little money in their pockets, have no difficulty in establishing non-liability companies. They meet together and project an association for some purpose or other—it matters little whether it be practicable or not—which they affirm will yield a profit of some 10, 20, or 30 per cent. after all expenses are deducted. And having hatched their scheme and issued their prospectus, they sally forth to canvass for subscribers. They assure those to whom they address themselves that the project is sure to succeed; that their liability being limited, they run no risk; and as the shares are only some £20 or £50, of which not more than a half is required, they advise them as "friends" not to miss an opportunity, which is not likely to recur, of providing for their families, making themselves independent, or adding to their fortunes! And, what with this sort of blarney, the puffs and paragraphs of newspapers, and, above all, the legislative guarantee against risk, they seldom fail of accomplishing their object; that is, of becoming directors, secretaries, managers, and such like dignitaries. The reader must not suppose that this is an imaginary picture. It has been over and over again realized to the very letter in the getting-up of not a few of the non-liability companies that have been set on foot in England during the last two or three years. The affairs of some of them have already come before the courts of law; and if we took these for samples of the others, we should have to regard them as little better than mere swindling engines. But it would not be fair to conclude from the instances referred to that such was their uniform character. A good many have no doubt been honestly got up; and the greater number of these being for routine purposes, such as the supply of towns with water and gas, it may be assumed that they will be fairly conducted, and will succeed. But there are very many of a totally different character. And it would be childish to suppose that in any case the same consideration will be given either to their formation in the first instance, or to their future management, that would be given were the partners indefinitely liable. Hence, while the system operates to the prejudice even of the best schemes, it holds
out every temptation to set on foot projects with the intention of deceiving and victimizing the public.
The contrivers of the new system tell us that, whatever it may really be, it is at all events popular with the public; and in proof of this, they refer to the great number of companies that have been already formed with limited liability. But no such reference was needed to enable any one to foresee that if a plan were set on foot to enable parties to contract debts without being bound to pay them, it would be eagerly grasped at. Gambling-houses are at present prohibited; but if they were to be licensed, does any one doubt that numbers of them would be opened in most considerable towns? And we should be told that this was a conclusive proof that the prohibition of gambling was disapproved by the public, and that it required the healthy excitement furnished by the newly-opened places of entertainment! But whatever may be the case with this or that institution, one should think that the former facilities for swindling might have sufficed, without giving them further encouragement.
But however powerful the deleterious influence of the limited non-liability system (for such it is when the shares are paid up) on the formation and conduct of companies, we are assured that it will be more than counterbalanced by the greater caution it will infuse into those who may deal with them. The names and the number of shares held by the partners in such associations, and the magnitude of their capital, or of the "fund" to which their creditors have to look, are all to be made known; so that those who transact business with them will be really aware of what they have to depend upon. But we take leave to say that they will have no such knowledge. Suppose that a non-liability company had a capital of £50,000 or £100,000, and that it was wholly paid up when it was established: it may have been greatly reduced, or wholly lost, in the next or in any subsequent year; and yet, as the public can know nothing, or nothing certain, of its losses, and may, on the contrary, suppose it has been successful, its credit may not be impaired, and it may go on extending its business and adding to its obligations after it is really insolvent. Ordinary partnerships, unless they consist of parties of very questionable solvency or character, have seldom any considerable difficulty in obtaining large amounts of credit; and companies, it matters not of whom composed, which are reported to have some £10,000, £20,000, or £50,000 of paid-up capital, will be sure to obtain loans to a much greater extent and with still greater readiness. In their case we have a kind of authorized guarantee for the possession of wealth. And this, it will be said, precludes all room for distrust; so that, unless we had access to very peculiar sources of information, it might be not a little dangerous to question the solidity of such an association; though the whole thing may be a snare and a delusion. The assurance, whether official or otherwise, that a certain amount of capital has been paid up, is really not worth a farthing. But the chances are, that it will, notwithstanding, serve its purpose with the million. It will make that appear to them to be gold which may not even be copper, and enable parties without a shilling to borrow large sums, and to trade or speculate on the means of others. In such cases the public is helpless. There is nothing on which it can rely; and when the imposture is discovered by the bursting of the bubble, no one is to be responsible for anything.
However it may be accounted for, there is nothing that is so lavishly and inconsiderately bestowed as credit. Frequently, indeed, it is rather thrust upon than given to individuals and firms. And it would be ludicrous to suppose that this is a case in which we can place any dependence on the caution of the public. The only real security is in
Partnership. the discretion, good sense, and, more than all, in the unlimited liability of the partners. They know, or may know, what they are worth, and what they are about, which no one else can know. And in the vast majority of cases they farther know that they will be bankrupts and beggars unless they act prudently and circumspectly. Hence our late legislation is precisely the reverse of what it ought to have been. Instead of diminishing, we should have increased the responsibility of partners, by abstaining from all interference with their indefinite liability, and giving additional stringency to the bankruptcy laws.
That increased caution on the part of the public which it is said will be a result of the new system is really, therefore, no better than moonshine. It can have no practical influence. The only security which in such matters is worth a pinch of snuff consists in the responsibility of partners. It is not to those who deal with this or that house, but to the houses themselves—to the guarantees under which they have been placed—that we must look for protection against foolhardiness and fraud.
It may therefore be reasonably concluded, that in ordinary businesses,—that is, in all businesses for carrying on branches of agriculture, manufacture, or trade,—partnerships with limited liabilities can be neither more nor less than unmixed nuisances. If honestly conducted, they must fail in their competition with private parties; and if otherwise, they will only add to the means, which were already sufficiently extensive, of wasting capital and fleecing the public.
In the scheme laid down by Providence for the government of the world there is no shifting or narrowing of responsibilities, every man being personally answerable for all his actions. But the advocates of limited liability proclaim in their superior wisdom that the scheme of Providence may be advantageously modified, and that debts and obligations may be contracted which the debtors, though they have the means, shall not be bound to discharge. Borrow, say they, as much as you please, and pay as little as you like,—the less, it would seem, the better! And can it be doubted that the adventurous, the needy, the unprincipled, and the desperate, will be eager to avail themselves of such extraordinary privileges? The reckless speculation, and the consequent bankruptcy and ruin, that have on former occasions overspread the kingdom have been trifling compared with the revulsions which may be anticipated, should the new system be allowed to spread its roots and scatter its seeds on all sides. Even the soberest individuals may be tempted to embark in hazardous projects; for, by limiting the risk, they in great measure secure themselves against loss by failure, at the same time that they reap all the advantages of success. Were Parliament to set about devising means for the encouragement of speculation, over-trading, and swindling, what better could it do than to carry out the non-liability system?
But we shall perhaps be told that these results, though apparently probable, cannot happen, inasmuch as Parliament has provided, by the Joint-stock Companies Act, the 19th and 20th Vict., chap. 47, sect. 14, that in the event of the directors of a company declaring and paying a dividend when the company is known by them to be insolvent, they are to repay the same out of their own pockets.1 Perhaps the reader may be inclined to think that those who are disposed to trust to a security of this sort are rather easily satisfied. A body of directors who would, under any circumstances, declare a dividend when they knew that the concern over which they presided was bankrupt, will not be
kept in the right path by the threat now referred to. The declaration of dividends when there is nothing to divide is not the way in which dishonest directors would be most likely to defraud their constituents and the public. They would make loans to each other, or if that be prohibited or apt to excite suspicions, they may do the same thing indirectly by the intervention of third parties. The capital and credit of the institution may be perverted, abused, and dissipated in a thousand ways before the circumstance becomes known to the public. And when the courts of law begin to inquire into the matter, they may probably find that the directors, like those of the Eastern Bank of London, have gone to enjoy themselves and repair their exhausted energies on the classic shores of the Mediterranean.
It is the merest delusion to suppose that anything, save the unlimited liability of the shareholders, can be made to afford even the semblance of an efficient check over the conduct of directors. And they no doubt may, and frequently do, fail to exercise that degree of surveillance over them which is as necessary for their own security as for that of the public. But if so, the fault is theirs, and there is no ground or reason why they should be permitted to escape from its consequences. The public have neither right nor power to interfere in the matter. Directors are the servants of shareholders, and they must answer, and, if needful, suffer, for their proceedings.
Some who are friendly to the principle of limited liability, but who are at the same time aware of the abuses to which it cannot fail to lead if the liability be limited to the mere amount of the shares, say that they would not object to its increase. It has, in consequence, been proposed to fix the liability at double or treble the amount of the shares; so that when a limited company failed, the subscribed capital of which had been fully paid up, the partners would not, as is now the case, be relieved of all responsibility, but would be obliged to make a further payment, if that were required, equal to the amount of their shares, or to double that amount, as might be decided upon. And this would undoubtedly be a very great improvement upon the existing system; for, while it would raise the character of the partners in limited associations, and make them more careful in regard to those they might choose for directors, and more disposed to watch their proceedings, it would make them contribute to the entire or partial relief of those whom they might otherwise have involved in total ruin. If, therefore, the system is to be continued, we should strongly recommend that the liability of the partners should be raised to at least double the amount of their shares. This would add to its solidity, and divest it of some of its worst features.
But, after all, this is only paltering with or mitigating an evil which should be cut up by the roots. Every sound principle is outraged when a man who has the means of paying his just debts does not pay them. Whether they are contracted by himself directly, or in company with others, is of no importance. He is in either case bound to pay them; and to pass laws to protect him in declining to pay them is to give a legislative sanction to dishonesty and villany.
It is alleged, however, that these representations are fallacious; that it is a manifest encroachment on the great principle of the freedom of industry to hinder individuals from engaging in partnerships under such conditions as they may choose to lay down; that in the event of these conditions being publicly declared, and everybody made aware
1 This is the statement in the body of the act; but in the "Regulations for the Management of Companies" attached to it we are told freedom of that "no dividend shall be payable, except out of the profits arising from the business of the company." We of course do not presume to decide whether this or the other statement be the more correct; but their contradictory nature affords a curious illustration of the slovenly, alipsed style in which the most important statutes are often compiled.
of what they are, they cannot be justly objected to; for as it is optional to deal or not deal with the association, those who dislike the conditions upon which it is established may keep aloof from it. But sophistry of this sort is too transparent to deceive any one, and might, in truth, be employed to excuse almost any sort of jugglery or delusion. The question is not whether limited liability be consistent with this or that abstract principle, but what are its practical results—what its probable influence over that public well-being, to promote which either is or should be the object of all legislation? It is with its operation in this respect, and with it only, that we have to deal. Publicans and carriers have made frequent attempts to limit or reduce their heavy responsibilities to those who make use of their services. But the great principle of public utility stood in the way of their claims; and they have not yet succeeded, and it is to be hoped never will succeed, in effecting their object; though ten times more may be said in favour of their exemption from indefinite liability than can be said in favour of the exemption of those engaged in ordinary businesses. If, indeed, there be one principle which more than another conduces to the public advantage, and may be said to constitute the foundation of all dealings between man and man, it is the obligation to discharge one's debts and obligations. And when such is the case, it is the bounden duty of government strictly to enforce the rule of unlimited liability, unless in cases, if such there be, when it can be clearly made out that the public interests will be better promoted by its relaxation or suspension. If a case of this sort be satisfactorily established, then undoubtedly the rule referred to should be waived in as far as it is concerned. But we entirely deny that, when tried by this test, it either has been or can be shown that partnerships en commandite are publicly advantageous. On the contrary, we have seen that they are in the last degree injurious, and that it is not possible they should be extensively introduced without giving an immense stimulus to fraud and reckless speculation.
In dealing with ordinary firms or associations, people trust, or believe they may trust, to the reputation for skill and integrity, and to the presumed wealth, of one or more of the partners. Such presumptions are not, indeed, always to be depended upon. In these, as in other matters, people may be misled by appearances, and may place an unmerited degree of confidence in earnest though insincere professions and promises. But how deceptive soever, the presumptions or indications referred to afford not merely the best, but the only guarantees that can really be had for upright conduct. Most people engaged in business, as hitherto carried on, are impressed with the well-founded conviction that their interests will be best promoted by their preserving an unblemished reputation; and when they act under the heaviest responsibility, the chances are ten to one that they will behave discreetly and honourably. But we have no such guarantees for the conduct of the partners of a society en commandite. Character is in their case of little, or rather of no consequence. Instead of being responsible, they are all, or may be all, but irresponsible. A, who is worth £50,000 or £100,000, has not more, perhaps, than some £1,000 or £2,000 vested in the society. Whether he lose or gain by such investment is a matter about which he probably cares very little. Most likely he has joined the association that he might engage, without fear or apprehension, in the boldest speculations. But whether this be or be not his object, it is an insult to common sense to suppose that associations of this description will be as carefully and skilfully conducted as those in which the partners are indefinitely liable for their proceedings.
It has been attempted to apologize for the non-liability system by referring to the usury laws, which permit loans to be made at any rate of interest and under a great variety of conditions. That, however, has evidently no real bear-
ing on the matter. If A lend B a sum at 5, 10, or 15 per cent., it is the affair of the parties, and of none else. They enter into the transaction with a full knowledge of the circumstances, and believe it will be for their mutual advantage. There is, however, no limitation of risk either on the one side or the other. The business in which the loan is to be employed may not succeed, and the borrower may become bankrupt; but if so, his entire effects will be liable to the uttermost farthing for this and his other debts. He therefore has every motive to manage his business so that he may avert a catastrophe that would bring with it his inevitable ruin. But such would not be the case were B's liability limited; and it would be foolish to expect to have the conduct suited to one set of circumstances under a totally different set.
It would be the easiest thing imaginable, were it at all necessary, to corroborate the previous statements by illustrations drawn from the United States, where the principle of limited liability has been long established. But these must be familiar to almost all our readers. Everybody knows that, notwithstanding the peculiarly favourable circumstances under which the Americans are placed, from their free institutions, their enterprising character, the lowness of their public burdens, and the boundless extent of their fertile and unoccupied lands, bankruptcy is ten times more prevalent among them than in England. The revulsions by which we are sometimes visited, though sufficiently severe, are gentle in the extreme compared with those that periodically devastate the United States. In various instances, one of which is of very recent occurrence, every banking company in the Union has stopped payment, while great numbers have been totally destroyed. And it is the same with associations of all sorts. A spirit of overtrading, or a determination, at all hazards, to "go a-head," is universally prevalent, and bears there, as here, its legitimate harvest of bankruptcy and disaster. So much so, indeed, is this the case, and such and so violent are the convulsions referred to, that it is no exaggeration to affirm that monied fortunes and personal property are more secure in Austria and Russia than in the United States. The national character has suffered through this miserable system. Those repudiations which have so justly damaged the credit of the Americans originated in their attempting to limit their responsibilities in their public as well as in their private capacity. And it could hardly, indeed, be expected that people who may contract debts to their neighbours which they are not bound to pay should be disposed to make an exception in the case of their foreign creditors.
We sometimes hear the rather unwarrantable assertion, that, unless their liability be limited, neither the poorer nor the richer classes are generally disposed to engage in extensive partnerships! But if it really had the effect of tempting the poorer classes to engage in them, that alone would be a very sufficient reason why all associations with limited liability should be suppressed. The condition of these classes will never be improved by withdrawing their attention from the businesses to which they have been bred, and in which they are engaged, to fix it on joint-stock adventures. The spirit of gambling and speculation is already quite enough diffused, without seeking to spread its baneful influence among the lower classes. Nothing should be done which it is possible to avoid to divert their attention from the pursuits of sober persevering industry. Their surplus earnings may be far more beneficially invested in savings-banks, in loans, and in contributions to friendly societies, than in joint-stock adventures.
And while, on the one hand, it would be very wrong to tempt by immunities of any sort the labouring classes to