The Origins of the 1855/6 Introduction of General Limited Liability in England
Total Page：16
File Type：pdf, Size：1020Kb
The origins of the 1855/6 introduction of general limited liability in England Julia Elizabeth Chaplin PhD University of East Anglia School of History July 2016 This copy of the thesis has been supplied on condition that anyone who consults it is understood to recognise that its copyright rests with the author and that use of any information derived there from must be in accordance with current UK Copyright Law. In addition, any quotation or extract must include full attribution. 1 Abstract The 1855/6 adoption of limited liability as a standard feature of companies incorporated under English law has puzzled historians. Members of a limited liability company have the reassurance of knowing that if the company gets into trouble, their personal financial assets will not be liable for company debts. Yet historians have found relatively little enthusiasm expressed by the investors or businessmen who might have been expected to benefit from the 1855/6 endorsement, prompting several to echo Philip Cottrell’s observation that, 'it is extremely difficult to account for this sharp and dramatic change'. This thesis provides a first, sustained attempt to examine this historical question in detail, and identifies neglected reasons why change came to seem important when it did. Opinion shifted seismically under the economic and social pressures of the late 1840s, when commentators, of whom John Stuart Mill was the most influential, interpreted railway 'mania', the 1847 financial crisis and then the 1848 French revolution in terms of a wider need for limited liability, as a means of expanding participation in companies and capital. Calls for financial democratisation acquired further momentum from the example of the United States and the large number of lawyers who joined Parliament following the election of July 1852. Political and commercial interest came together in a covert campaign organised by solicitor Edwin Field, shipowner Robert Lamont and politician Robert Lowe, who joined forces in early1853 to try and effect legislative change. Knowing more about these events casts fresh light on the route that wider changes, grounded in steam-power and joint stock companies, took to limited liability. This helps illuminate a pivotal moment in British finance, when older-established intuitions about capital and companies, rooted in physical individuals, gave way to abstract, recognisably modern conceptions. 2 Contents page: Acknowledgements 4 Introduction 5 1 Limited liability's public emergence in England 12 2 Public discussion, 1825-33 28 3 Public discussion, 1834-44 49 4 Cultural investment in limited liability 73 5 The late 1840s and the role of the railways 99 6 The American example 141 7 In pursuit of a capitalist community of interest, 1850-2 171 8 The push for parliamentary action, November 1852 - July 1856 199 Conclusion 251 Appendix 259 I. Age and occupation of 1854 Liverpool Chamber of Commerce speakers II. Age of 1853 Mercantile Laws Commission respondents Bibliography 261 3 Acknowledgements My thanks are due to the many, unfailingly helpful librarians and archivists that I have encountered during the course of research. In particular, I should like to thank Guy Holborn and staff at Lincoln's Inn Library, for allowing me to take up residence there for three weeks, Guy Penman at the London Library, Mandy Wise at University College London for her help with access to the Brougham papers, and David Bradford at the Birmingham Chamber of Commerce. I am grateful to Ayano Mori and Nagoya University Library for supplying a copy of the 1854 Charles Buxton pamphlet. The best research decision for this thesis was made at the outset, when trying to find a supervisor and academic institution. I have been exceptionally fortunate in having Anthony Howe as my supervisor, and to have benefited from the welcoming and supportive environment of the University of East Anglia. Amongst family and friends who have provided much-appreciated encouragement along the way, I owe a special debt to my parents. My father's passing remark that limited liability was 'one of our greatest gifts to the world' started me wondering if it really was, and first set me off down this road. My mother has led the chorus of those urging me to get to the end of it. 4 Introduction On a September evening in 2003, the Royal Society for the Encouragement of Arts, Manufactures & Commerce - or RSA - held a debate on the question: 'The limited liability company: has its popularity peaked?'.1 Long experience with economic debates apparently paid off, since at 6pm, a large number of interested business professionals had assembled ready to address the chosen topic. Perhaps mindful of their surroundings, they also proved ready to display a sense of history. When discussion began, the first speaker launched a defence of what he called 'one of the greatest and most influential British inventions', with a paean to Victorian achievement and the 'great Companies Act of the mid-nineteenth century'.2 Not to be outdone, a second called instead for a return to the values of an earlier age. When limited liability companies were still under state-control, she said, they were 'in effect a public good'.3 After further contributors had had their say, the chairman eventually drew formal proceedings to a close. He remarked as he did so that the division of opinion had proven a gendered one. Where the women had looked at the limited liability company and seen a social threat in urgent need of regulation, the men had seen a social saviour, widely misunderstood but still capable of transforming the world if only trusted to take care of itself. The moral of this story is, as someone once said, that you don’t have to be a Marxist to see that history repeats itself. About 150 years before this modern-day debate took place, the freedom to establish a limited liability company in England was first formally granted, and in the accompanying discussion, participants also took up polarised stances on either side of a moral divide. Since very few women took part in the Victorian debate, the division of opinion was not then noticeably aligned with gender. It was however, similarly split between those who feared moral degeneration and others happier to see moral maturity. The banker Lord Overstone was very definitely of the former camp, and 1 The Economist/RSA conference, 18 September 2003, transcript from www.thersa.org 2 John Micklethwait, RSA conference. 3 Deborah Doane, RSA conference. 5 warned that under limited liability, 'the commercial world, like Nature under a poisoned atmosphere, [would] teem with all monstrous things'.4 Robert Lowe, sponsor of the parliamentary Bill which prompted this response, anticipated an altogether rosier future: 'unlimited and unfettered liberty of action [would tend] to the prosperity and happiness of man'.5 Others predicted either 'an act of great injustice upon every man who conducts his own business'6 or nationwide 'elevation of character, dignified bearing, and increased self-confidence'.7 Some clearly thought such rhetorical flights too much in evidence. Manchester MP John Bright, for one, found expectations 'grossly exaggerated on both sides'.8 He would hardly be reassured by some of the contentions made since. Writing in 1912, the American philosopher Nicholas Murray Butler declared the limited liability corporation to be 'the greatest single discovery of modern times' - and his is only one of the more frequently quoted claims, a favourite introduction to American articles on the subject.9 The British too have their community of true believers. One late-Victorian enthusiast, looking back on the events in which Bright, Lowe and Overstone participated, claimed that by 'the simple expedient of adding the word "Limited" to the company’s name, … the greatest commercial revolution ever inaugurated was accomplished'.10 At first sight, it is not easy to see what these and many others found to get so excited about. A limited liability company is a company whose members have no liability for corporate debts beyond the nominal value of their share-holding. As such, it provides an insurance policy for investors, reassured that they know the extent of any potential losses, and that their private financial assets will not be called upon to cover company debts. What is there in this arrangement to inspire such vehemence? Faced with this and doubts as to the underlying economic interest, historians have acknowledged a distinct problem in trying to understand limited liability: namely, how to account for the sweeping nature 4 Hansard, 3rd series, vol. 141, c140 (14 March 1856). 5 Hansard, 3rd series, vol. 140, c138 (1 February 1856). 6 William Hawes, Observations on Unlimited and limited liability and suggestions for the improvement of the law of partnership (London, 1854), p.30. 7 'Partnerships with Limited Liability', Westminster Review, October 1853, p.62. 8 Manchester Chamber of Commerce Annual General Meeting, 4 February 1856, Proceedings of the Manchester Chamber of Commerce, 1849-58, M8/2/5, f474, Manchester City Library. 9 Nicholas Murray Butler, Why Should We Change our Form of Government? Studies in Practical Politics (New York, 1912), p.82. 10 Edward Manson, Builders of our Law during the Reign of Queen Victoria (London, 1904 edition), p.198. 6 of the endorsement given it in 1855/6, after decades of apparent reluctance to accept even partial reform. H. A. Shannon was the first to comment on the suddenness with which legal change apparently materialised, in his 1931 Economic