THE PARTNERSHIP LAW AMENDMENT BILL.
WHEN first the Legislature was induced to relax the severity of the law which makes every one who shares the profits of a business liable for its debts to the extent of his -whole means, it was probably the almost instinctive fond- ness of the English people for joint-stock companies which secured to them, in the first instance, the exclusive enjoy- ment of the privilege. Besides, either by Act of Parliament or Royal Charter, various bodies, railway companies espe- cially, were already constituted on this principle ; and the notion of a company, therefore, whose members were liable to its creditors only to the extent of the amount of capital they had subscribed, was not branded with the damning mark of total novelty. How amply the public have availed them- selves of their freedom—how numerous are the schemes to which the principle of association applies—we have pointed out in another place, and, indeed, the advertisement-sheet of the Times daily proves. But, strangely enough, while we borrowed from our French neighbour his societe anonym, and domesticated it among us as a "limited company," we have hitherto shrunk from adopting the system of partnership en commandite, although the advantages it offers are, in some respects, greater, and the risks to which it exposes the public decidedly less. An attempt is now being made to remedy this omission. A bill, prepared under the instructions of the Birmingham Chamber of Commerce, has been introduced by Messrs. Scholefield, Murray, and Stansfeld, and, having passed the second reading, has been referred to a Select Com- mittee.
The main object of the bill is to enable any person to lend money to a trading firm on the terms of receiving a share in the profits in lieu of, or in addition to, a fixed rate of interest —becoming thereby a limited partner—without incurring any liability to the creditors of the firm beyond the amount of the money lent. To secure this advantage, the names and ad- dresses of each of the partners must be registered, as well as a statement whether each is a general or limited partner, the name of the firm, the nature of the business, the place where it is carried on, the sum lent, and the time of lending and of repayment. There is, however, here a very singular omission— which will, it is to be hoped, be remedied in Committee— the lender need not state the share of the profits which he is to re- ceive. Certainly, information on this head would give a better clue than, perhaps, anything else, to the position of the firm, and it is just publicity on a matter of this sort which we have a right to ask in return for the privileges conceded. The name of the limited partrer is not to be used in the firm, and if he receives his money back before the time appointed for repayment, he is to become liable as a general partner. The time for repayment may, however, be accelerated by the death or bankruptcy of one of the partners ; and the liability of the limited partner as to debts of the firm contracted before the repayment is to last for twelve months after it.
Another important clause (the 15th) enables clerks, man- agers, or servants to be paid either wholly or in part by a proportionate part of the profits, without incurring any of the liabilities or acquiring any of the rights of partners. Of an arrangement of this sort no registration is necessary. There seems to be considerable doubt whether this provision does not render the first altogether nugatory. What is to prevent a firm, which desires to borrow capital en eommandite without publicity, from practising a contrivance of this sort ? A is willing to lend 10,000/. on condition that he receives half the profits. He accordingly lends it at a nominal interest of one-twentieth per cent., and is forthwith appointed the agent of the firm for the district in which he lives, his remuneration being one-half of the profits of the business, and the duties of
the agency, of course, merely nominal: In this way; too' he
would obtain another advantage, for he would, in case of the bankruptcy of the firm, come in pan i panic with the other creditors, instead of being postponed to them. There seem.s to be no good reason why, if a clerk or agent is to be paid by a share of the profits, the arrangement should not be registered - The principle of the law is that he who shares profits must also take his share of liability, and he ought not to be per- mitted to escape from the rule, except on the condition of full and perfect publicity. It seems, moreover, a very poor reason for allowing firms constituted in this manner to shrink from putting the word "limited" after their style—just as limited companies are obliged to do—that "it was felt by commercial men to be an awkward requirement."
These defects, however, may easily be obviated in com- mittee, and the principle of the bill has our cordial appro- bation. In the first place, such partnerships are free from the reproach too often addressed with justice to the limited companies. In the latter, the directors are liable only to the
amount of the money they have subscribed, and when they- find their capital well-nigh gone, they are under a strong temptation to endeavour to win it back by hazardous specula..
tions. From this source spring those shameful bankruptcies. whichhave too often occupied the public attention. But in the case of a partnership en conzmandite, the general partners. still remain liable to the full extent of their resources, while the eommanditaire, who can take no part in the management of the business, is alone permitted to incur only a definite risk.
But the great advantage of the system is, that it permits. men of business, who have shown themselves to possess the necessary sagacity, enterprise, and honesty,—the men whose- talents it is the interest of the public to keep employed—to- acquire the capital they want with the greatest possible facility. At present they can borrow only from the investor„ whom they must tempt—if, indeed, they can tempt him at all —by an exorbitant interest to be paid in adversity, just as. in prosperity—in bad years, as well as good. Under the new act they may turn their backs on the investor, and appeal to. the speculator. There are innumerable men who would lend. small sums in the hope of large profits with avidity, if they could only limit their liability to the amount so lent; and the very uncertainty of the returns would prove an additional
allurement. The burden sits, on the other hand, more easily on the borrower, for he pays for the loan in proportion to his own. earnings ; while the public is equally a gainer, for men know, when they trust the trader, to what extent he trades. with borrowed capital, and, if failure comes, the corn- manditaire cannot receive a farthing of his capital back, until the claims of all the creditors of the firm have been fully- satisfied.
A curious argument has been put forth that the only pro- per returns of capital are interest and insurance, and that profits on the returns beyond interest and insurance are the proper reward of the manager of the business. And it has- even been contended that if the Legislature interfered at all, it should encourage mercantile talents by preventing the idle capitalist from receiving any share of the profits. But it is obviously to the interest of the clever man of business without capital to be allowed to get it on the best terms he can. If he cannot get it without giving up some of the profits surely he may be allowed to judge for himself whether he will do so or not. The proposition really is, in principle, a sort of revival of the usury laws. It is an attempt to set up an. abstract notion of justice in money matters, instead of leaving the parties to regulate their own affairs in conformity with their own feelings and interests. But the most important amendment of the law is that whicla, enables employers to pay their servants by a share of the
profits. We have before pointed out the danger of allowing this to be done by a secret arrangement, but with due publi- city this system is capable of changing the face of the country. It may not be generally known that on the Orleans Railway— of all the lines in France, that which pays best—this system is in full operation, and every ticket-taker and every porter feels that his remuneration depends, to some extent, on the success of the line. Probably no labourer toils so honestly for his week's wage as the Englishman but every employer knows, for all that, how much it is to his advantage to pay his labourers by the piece. We are far from saying that the deeply rooted prejudices and habits of employers in this country will be easily overcome, or that, even if this Bill becomes law, they will consent to share profits with their dependents. But, at least, it will render it possible to do so, and may thus lead to the introduction of a system of which the economical advantages would be great, but the moral advantages to the labourer still greater.
The Bill also contains some useful provisions to enable disputes between partners in certain cases to be settled by arbitration, instead of a Chancery suit, and to compel persons trailing under a style which does not contain the names of all the partners to register their names and addresses. But the latter clauses, at all events, are scarcely fitted to carry out in practice the very excellent object they have in view. How- ever, it is scarcely worth while to examine the details of a bill which has still to undergo the ordeal of a select com- mittee.
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