SIR,—I am indebted to you for assisting me in my
efforts to call public attention to the many serious drawbacks of "limited liability," by alluding to the main contentions of my recent Nineteenth Century article. There have been critics and criticisms of many shades, from the Christian World, which says I omitted to say anything of the religious aspect of the question, down to a financial contemporary, which attributes my pessimism to a flaw in my "intellectuals." But the Spectator's is the only criticism which penetrates to the root of the matter, and which therefore is worth answering.
You indicate on what principle you dissent from my views, by asserting that "the right to venture a particular sum in business and no more is an inherent right in a member of a free community ; " but with your permission I should like to dispute the soundness of this principle in your columns.
Colonel Ingersoll used to say that the right of one man has for its limits the right of another, and that sound maxim at once destroys, in my opinion, the validity of your objec- tion. Any one can pay a particular sum and no more to a charity without endangering the rights of others, but he can but seldom venture to a limited extent upon any business without placing the property of others in jeopardy. In other words, by " limiting " one's liability, the latter is, in the case of companies, simply shifted upon others. I may note in passing that, as a general rule, there is no " limited " or other liability on shares, but a perfect immunity from liability as soon as the shares are fully paid, as they generally are. The very phrase "limited liability" is a misnomer ; and it would, in my opinion, have prevented most of the abuses of the com- pany system had there been a real liability, though limited, on each share beyond and above its face value. How much sounder would our business be if, whenever his company becomes insolvent, every shareholder could be made to pay a limited assessment ! Our joint-stock banks 'seem to have taken this view long ago; hence their shares are, as a general rule, but partly paid, so that a real limited liability is attached to them. But there is, alas ! no such liability in the great company world, and in consequence there is very little sound- ness. The uncertainty surrounding the solvency of so many companies is highly injurious to business ; for your opinion that "the creditors know to a penny the amount of capital responsible for their payment, or can know if they like," only relates to theory. In practice it is not, under the present laws, knowable. Nothing prevents any one from mis- leading his creditors by converting his business into a
company with a large nominal share capital which does not represent a single actual penny ; nothing prevents any one who wishes to do so from hypothecating every
asset of his " one-man " company, whether paid for or not, by means of debentures or assignments. It is to be hoped that the present Parliamentary deliberations will make such dishonesty impossible for the future. But it would be too much to expect the radical changes which "limited liability" needs to become a healthy economic factor.
Such changes would have to include a real additional liability on each fully-paid share, and with over £2,000,000,000 in limited companies of various kinds, retroactive legislation would at once cause the collapse of a top-heavy system.— I am, Sir, &c.,
[We do not in the least agree with our correspondent's contentions, but cannot continue the discussion of this highly technical subject.—En. Spectator.]
Previous page
