PERSONAL LIABILITIES . DIRECTORS JOINT STOCK COMPANIES. BY HENRY LLOYD MORGAN, . ■* Accountant, 74, CGRNHILL. E.C. Author of <( AUDITORS OF ACCOUNTS : THEIR QUALIFICATIONS AND DUTIES.” FOURTH EDITION, REVISED LONDON: EFFINGHAM WILSON, ROYAL EXCHANGE. 1859. For Notices of the Press, see—- Times .. . 1858. Mercantile Journal . n ii Commercial Daily List . n ii Dispatch . .. ... 10th n 19 Atlas ... u 11 Mining Journal . . ... ... 10th n 11 Morning Star . i> 19 Ilerepath’s Journal ... ... 17th n 19 Monetary Times .. ... 17th it 11 Atlas ...... .. ... 24th ii 11 Morning Herald . ... 27th n 11 Standard .. ... 27th n 99 Morning Advertiser . ... 29th i > 91 Critic ..... 11 Monetary Times . 91 91 Newcastle Journal .. ... 15th 91 11 London Mercantile Journal . ... 18th 19 91 Commercial Daily List .. ... 20th 11 11 Daily Telegraph .. 11 91 Railway Record ... .. 29th 11 11 Morning Chronicle . .. 15th June 11 Financial Reformer . 11 Weekly Times .. ... 4th 11 11 Joint Stock Ledger . 11 Post Magazine . .. 30th October ,, Illustrated; News of the World . .. 12th Feb., 1859. Dispatch ... .. 28th 11 ii PERSONAL LIABILITIES OF DIRECTORS OF Saint $Mt Cnmpatra. The Fraudulent Trustees’ Act of 1857 has so materially increased the responsibility of Directors of Joint Stock Companies, that it may be important to place before them, and before Shareholders, those clauses which more im¬ mediately affect the interests of both : this is the more desirable, because, on the one hand, a neglect of their provisions will lead to serious danger ; while, on the other, a due compliance with them will attract confidence, and furnish the means of raising the value of Shares and of increasing the dividends of those enterprises which are conducted on sound principles. The conviction of the Royal British Bank Directors has demonstrated that the old law, when set in motion at a prodigious cost, was sufficiently powerful, without the aid of the Fraudulent Trustees’ Act, to punish those who conspired, by false statements and misrepresentations, to inveigle the public into purchasing Shares in an insolvent enterprise. But as the 20 and 21 Victoria, cap. 54, re¬ moves much difficulty in the way of prosecutions, it may be well to consider the provisions relating to the Records and Balance Sheets of all Joint Stock Associations, for it is upon them that the safety of Directors and the welfare of Shareholders will greatly depend. It will be 4 i most desirable to begin with the four sections which liaVe lately occupied so large a share of public attention. Section YI.—If any person, being a Director, Public Officer, or Manager, of any Body Corporate or Public Company, shall, as such, receive or possess himself of any of the money or other property of such Body Corporate or Public Com¬ pany, otherwise than in payment of a just debt or demand, and shall, with intent to defraud , omit to make, or to cause or direct to be made, a full and true entry thereof in the boohs and accounts of such Body Corporate or Public Company, he shall be guilty of a misdemeanour. Section YII.—If any Director, Manager, Public Officer, or Member, of any Body Corporate or Public Company, shall, with intent to defraud, destroy , alter , mutilate, or falsify , any of the books, papers, writings, or securities, belonging to the Body Corporate or Public Company of which he is a Director or Manager, Public Officer or Member, or make, or concur in the making of, any false entry or any material omission in any book of account or other document, he shall be guilty of a misdemeanour . Section YIII.—If any Director, Manager, or Public Officer, of any Body Corporate or Public Company, shall make, circulate, or publish, or concur in making , circulating, or 'publishing, any written statement or account which he shall know to be false in any material particular, with intent to deceive or defraud any Member, Shareholder, or Creditor, of such Body Corporate or Public Company, or with intent o induce any person to become a Shareholder or partner there¬ in, or to intrust or advance any money or property to such Body Corporate or Public Company, or to enter into any security for the benefit thereof, he shall be guilty of a mis¬ demeanour. Section X. —Every person found guilty of a misdemeanour under this Act shall be liable, at the discretion of the Court, to be kept in penal servitude for the term of three years, or to suffer such other punishment by imprisonment for not more 5 than two years with or without hard labour, or by fine, as the Court shall award. The public are now thoroughly impressed with the necessity of obtaining accounts, not only more intelligible and correct than those which have been presented by many fraudulent Companies whose cases have become conspicuous through the law courts, but much more com¬ plete and easy of comprehension than those which, under the advice of their Accountants, the Directors of honour¬ able enterprises have been accustomed to issue. Share¬ holders are now armed with powers greater than they have ever possessed before, and their relation to their Directors and Officers has so materially changed, that it is not too much to affirm, that no member of a board, or important servant of a Company, can be safe from the risks of pro¬ secution without the adoption of precautions which have hitherto been thought unnecessary. It is far from the writer’s wish to alarm men of character and position who are engaged in the management of Joint Stock Companies, or to represent the new law as necessarily placing them in danger : on the contrary, it is within their power to make their position safer than it was before ; but they can only do so by enforcing a method of boo/e-keeping and preparation of statements so clear and complete as to afford them from day to day , andfrom week to week, as accurate a knowledge of all important facts, as a merchant or banker is in the habit of obtaining in his own counting-house. No Director should be satisfied with mere assurances that books or statements are correct. He should assume everything to be incorrect which lie cannot fully understand ; he should take care that an Audit is a reality and not a sham, and never suffer a single document to go forth to Shareholders, or the public, upon 6 the authority of an Accountant or Auditor, however honest and able, unless it be so arranged as to give to his own mind, without doubt or difficulty, every information to which his constituents,or the public, are entitled. It might be well to test the operation of the new law by the prosecution of a few of the higher class of delinquents, whom the prospect of three years’ imprisonment has not at present deterred from issuing statements which, to say the least, admit of misconstruction ; but there can be no doubt that the 6th, 7th, and 8th clauses of the Fraudulent Trustees’ Act have rendered even carelessness a very dangerous offence. Until lately, it was not uncommon to hear that neither Directors nor Auditors had examined the accounts : they took upon trust whatever was placed before them ; and unfortunately it is notorious that in some instances the Auditors went out of their way to compliment the Secre¬ tary and other officials for the correctness with which they had made up accounts, afterwards proved to be fallacious. Directors must now thoroughly understand that they are personally and individually responsible for all documents put forth under their sanction, and it may therefore be expected that henceforth they will, for their own safety, refuse to pass any statement which is not within the reach of their comprehension. Where an account is un¬ intelligible, it is not unfrequently fraudulent, or it affords opportunity for fraud ; and consequently every Balance Sheet which is not perfectly clear and intelligible should be regarded with suspicion, and as liable to form the ground¬ work of criminal proceedings on the part of any Share¬ holders whose expectations have been disappointed. The best security would probably be found in establish¬ ing, among Companies of the same class, uniformity of 7 Balance Sheets to as great an extent as practicable. This will be found more effectual than any other means to enable the Auditor to detect irregularities, and secure Directors against being misled. Railway, Banking, and Insurance Companies might easily agree among them¬ selves on the form which would best meet their several requirements; but, whatever variety of form might be necessary, each Company should be compelled to make up its accounts on the same plan. The Balance Sheets now issued by Joint Stock Banks differ materially from each other in form, though not sufficiently to oc¬ casion any difficulty in amendment; but the Balance Sheets of Railway Companies differ so widely, that there is no possibility of instituting any comparison between the relative value of their respective Shares, while the capital is, in some instances, set down as a debit and in others as a credit, thereby showing the necessity of a prescribed form which should be made compulsory, to enable Shareholders who do not well understand figures to form an accurate judgment on the affairs of the Company.* Whatever form of Balance Sheet may be determined upon, as the best and most satisfactory to be published by any Company where Directors intend to act honestly by the Shareholders, it should spring naturally from the system upon which the books of such Company are kept. Accountants’ work is too often intended to be technical and mysterious to all but the initiated, even when it is * See Captain Galton’s Report on Railway Companies for 1857, page 32, in which he suggests that the accounts of all Railways should be made out on an uniform system, and that they should be certified by a continuous audit. 8 not absolutely designed to deceive ; and although the 'principles of book-keeping are simple enough, their appli¬ cation to complicated enterprises demands a combination of talent and experience not always found in those to whom such functions are entrusted. It is quite possible to concoct an intelligible Balance Sheet from accounts kept according to a bad method, and such a Balance Sheet may be correct; but no Balance Sheet should be relied upon, that is concocted or “ cooked ” in any way what¬ ever. It ought to be nothing more than a resumt of results simply extracted from the ledger, and easily traced. It maybe asked, How is a Director to know whether the Balance Sheet prepared by his officials, and agreed to by his Auditors, is a document legitimately drawn from the books of the Company, or a concoction that, whether right or wrong, does not fairly spring from them % The answer is very simple, and will become apparent from considering the various objects for which a merchant puts himself to the expense and trouble of keeping books at all. It is evident that a merchant wants to know what he has to pay, and what he has to receive, from day to day ; but he also wants to know, or to be able to find out with the least possible delay, the balance of his transactions, whether for or against himself, the exact con¬ dition of his stock, with specific information as to the cost and returns of each portion of his business, and how much each contributes to profit or loss. A prudent merchant is not contented to remain in ignorance upon these matters until the end of the year, when his books may be balanced : he wants to have continual information upon them, which, if not right to a fraction, may still be a sufficient guide for his proceedings. In like manner 9 a Board of Directors will find themselves in constant need of this class of information, and they should condemn at once any system of book-keeping that is not able to afford it with all reasonable expedition. They should, moreover, place no confidence whatever in Balance Sheets drawn from such books. In new Companies, Directors will find it necessary to take care that the books are kept with distinct reference to the ultimate result,— namely, a simple, intelligible Balance Sheet, naturally extracted from them without a moment’s needless delay. In old Companies, that have not hitherto published Balance Sheets sufficiently clear and complete, a special investigation is necessary, to ascertain whether the books are kept in a manner that can fairly lead to a good Balance Sheet, or whether the incompleteness of those already published has not been the necessary consequence of not arranging the accounts in a proper manner. A bad method of book-keeping not only deceives Directors, but renders an efficient audit practically im¬ possible. It must, however, be remembered that nothing short of an efficient audit will satisfy Shareholders ; and as the Fraudulent Trustees’ Act places before Directors the agreeable prospect of three years’ penal servitude for any material inaccuracy or omission which, although not so designed, a jury may consider intended to deceive, they will probably be wise enough to employ Accountants and Auditors whose integrity and experience will afford a sufficient safeguard. Lord St. Leonards, in his “ Handy Book,” page 129, remarks, that trustees and executors should not, in diffi¬ cult cases, trust too implicitly even to counsel, as, after all, the client himself is the party responsible, and will ultimately suffer whatever loss may be incurred. So with 10 Directors; they ought to place great confidence in any person of established reputation whom they may appoint as Auditor—but they should never be satisfied if the statement submitted to them is not perfectly clear and self-explanatory. There can be no difficulty in keeping the Receipt and Expenditure separate, and stating each so clearly that no possible misunderstanding can arise. Where there is the slightest obscurity, suspicion should be roused.* Many of the periodical accounts carry fraud on the face of them. A mere child would be easily made to compre¬ hend the reason why various information was concealed or withheld. Suspicion must necessarily attach to all unintelligible or imperfect statements, and a Director subjects himself to considerable risk if he permits an account to be published in which he sees anything un¬ satisfactory. It should be observed, that, to constitute a penal offence, there must be an intention to defraud or deceive ; consequently, if Directors, after paying reason- * “ Whenever debits and credits are jumbled together, there is always great risk of mistake ; and, mistakes being made, there is a still greater chance of their escaping detection. Every professional Accountant, whose duty it is to trace errors, must be aware of the reason why figures are often placed in the wrong places; and records in bankruptcy would show many a case in which men who began by attempting to deceive others by the misapplication of figures, have ended by deceiving themselves. The only plain and in¬ telligible principle is that of Debtor and Creditor ; and the slightest departure from this rule must open the door to error, and may open it to fraud. It may indeed be safely assumed in all matters of account, that, where there is mystery, there is deception; and, further, that, where deception is practised, dishonesty may fairly be suspected .”—Liverpool Financial Reform Tract , No. XVIII,. page 12. 11 able attention to their duties, employ a respectable Audi¬ tor, and give him the means of thoroughly investigating the accounts, they will have guarded themselves against imputation, even if mistakes or omissions should be subsequently discovered. If, on the other hand, a mere conventional Audit takes place, Directors will find their position made worse, instead of better, if any incorrectness should appear. An Auditor has no right whatever to question any acts of the Directors, nor is it any part of his duty to in¬ quire respecting the nature of particular items of expen¬ diture. His business is to see that the accounts are intelligibly and clearly arranged; that the vouchers correspond with the sums charged ; that the securities held by the Company are correctly enumerated ; that the balances are brought down accurately; and that the liabilities and assets are properly described. These are the chief points of examination, and it is altogether be¬ yond his province to question either the Directors or the Secretary about any internal arrangements or expenditure. He has only to vouch for the accuracy of what is set down in the Balance Sheet, and to take care that there is no material omission. Much misapprehension prevails on this head, and it is hoped that the previous remarks will have made the subject more intelligible. The Fraudulent Trustees’ Act has greatly enhanced the value of an efficient Audit; and although there may still be objections, in some few cases, on the part of Directors to employ persons duly qualified to investigate the Balance Sheets prepared for the periodical General Meetings, no confidence can be placed in those Companies who do not show good reasons for believing that their Audit is independent and exact. It is altogether unreasonable 12 to insist on an Auditor being a Shareholder. The interest created by holding a few Shares is not sufficient to pro¬ tect the interest of the Company ; and so far from making the Audit more complete and satisfactory, it would be likely to have the reverse effect, as most Shareholders regard the amount of dividend only, without reference to whether it is paid out of revenue, or added to the capital account. While Railway Companies offer such obscure state¬ ments as are frequently submitted, there can be no safety. In some instances, the capital is placed on the debtor side, and in others on the creditor side. Of course, both will be correct according to the heading of the Balance Sheet; but it would be more satisfactory if there were some general agreement that the capital should in all cases be considered either a debit or a credit, and that some arrangements should be made for giving Shareholders this security. A pamphlet has been recently published giving much useful information respecting Railways, and it also contains some valuable sugges¬ tions.* Every Railway Company, to ensure full and accurate information for the guidance of Directors, should establish a Finance Committee of competent men, whose business it should be to examine and check every branch of revenue and expenditure at short intervals, otherwise it is impossible for any single Director to vouch for their accuracy : for the magnitude of railway accounts will not admit of any individual judgment as conclusive proof of their correctness. * “ .Railway Statistics, Returns, and Legislation.” P. S. King, 34, Parliament Street, and Mann Nephews, 39, Cornhill. 13 Three pamphlets * have been published on the duties of Auditors, and the Fraudulent Trustees’ Act has made those duties so much more important and difficult, that it is quite clear the Directors of Joint Stock Com¬ panies, of whatever description, must entirely avoid dilettanti Auditors, if they wish to avoid the penalties to which they may be rendered liable by any material omission. Secretaries and Managers are naturally anxious respecting the penal consequences to which they may be made amenable by following the instructions of a Board of Directors. The question is asked unreservedly, “ If I am ordered by my Directors to prepare a statement which does not appear to me to be correct, or perhaps that I know to be incorrect, how am I to avoid doing so ? If I follow the instructions of my superiors, I render myself liable to three years’ penal servitude ; and if I refuse to do so, I shall be dismissed.” There is no doubt consider¬ able difficulty in meeting such cases ; but it may be suggested that the least evil would, in most instances, be to retire from an establishment the duration of which could not be long, rather than incur the risk of three years’ penal servitude, or even the milder sentence of twelve months’ imprisonment which Mr. Cameron suf¬ fered for having, in the Royal British Bank, done, to please himself, precisely what is here supposed to be done at the command of another. No Secretary or Manager, however, who was connected with an association of any standing whatever, would incur much risk from respectfully * “ Qualifications and Duties of Auditors.” Effingham Wilson. “ Audit Defined and Explained.” Waterlow and Sons. “ Auditorship. Its Obligations and Responsibilities.” Letts, Son, and Go. 14 but firmly declining to do what he knew to be wrong, as any Director, who, after such warning, was a party to pub¬ lishing unfaithful accounts, would at once criminate him¬ self ; and should the matter come before a court of justice, there is not much difficulty in guessing how such a cir¬ cumstance, as an unfair attempt to get rid of a valuable officer, would influence the minds of the jury in deciding upon their verdict, and of the Judge in apportioning the penal provisions of the law. There is no fear of collision between Secretaries and Auditors where the accounts are regular, and the system upon which they are kept is adapted to the business of the Company; but an Auditor should not pass any statement which is unintelligible, because the Directors will look to him for security that the report may be relied upon. “ No solvent Company, conducted with ordinary skill and intelligence, can have anything to fear from the most extensive circulation of all parti¬ culars connected with it; in fact, the wider the range through which the advantages of the enterprise are made known, the greater will be the profits; and there is no better or more legitimate form of giving publicity to a prosperous establishment than by advertising its exact financial position.” An Auditor has no means of ascertaining the position of a Company with minute accuracy ; his business is with the accounts and vouchers, and he cannot be expected to know anything of the value of securities held by the Company—unless furnished with special instructions and powers to go into that matter; nor can he by any possi¬ bility be assured of the extent of the liabilities, which may not be apparent from the books. He must con¬ tent himself with watching carefully, for it is obvious 15 that forged vouchers might easily be placed before him, and he could have no immediate means of detection. When an Auditor does his duty properly, there can be little danger in ordinary cases; but experience daily shows that there is no possibility of immediately detect¬ ing a well-organized system of fraud. An illustration of this may be found in the six Joint Stock Banks which have been the subject of so much animadversion.* An expe¬ rienced Auditor would indeed have detected weakness in most of these establishments, more especially if the Balance Sheets had been made out on a more uniform system, but he might not for some time have discovered the extent of fraud which appears to have been perpetrated. Incalcula¬ ble benefit would be derived from uniformity of Balance Sheets, as they would soon be rendered intelligible, if subject to the criticism of Shareholders. As Joint Stock Companies are now steadily progressing, it may be useful to call attention to the enormous extent of English capital. The following particulars relating to the wealth of Great Britain have been extracted from the Prize Essay on the National Debt, by Mr. Edward Capps, and will show the necessity of giving every encouragement to Joint Stock enterprises, which are now so rapidly in¬ creasing our national resources. In 1700 the total wealth of the country was supposed to be only six hun¬ dred and fifteen millions, and it is now estimated at six thousand millions sterling. * The Joint Stock Banks above referred to are the Tipperary Bank, the Boyal British Bank, the London and Eastern Bank, the Western Bank of Scotland, the Borough Bank of Liverpool, and the Northumberland and Durham District Bank. 16 Year. Population. National Debt. Total Wealth in Real and Personal Property. 1700 8,000,000 £ 15,000,000 £ 615,000,000 1800 16,000,000 450,000,000 2,250,000,000 1812 18,000,000 670,000,000 2,736,640,000 1857 30,000,000 800,000,000 6,000,000,000 In 1796 some estimates were made of the annual income of the country, and it was then supposed to he £233,308,800; in 1846 it was estimated at£488,000,000, and in 1857 the annual income was presumed to be, be¬ tween five and six hundred millions sterling, having more than doubled itself within sixty years; while the capital of the country is supposed to have increased from two thousand five hundred millions to six thousand millions. It would be impossible to describe accurately the exact data on which these calculations are made, and Mr. Capps, alluding to the increased number of acres of land brought into cultivation, and also the increased product of Iron, Copper, Tin, Coal, &c., says, page 131,—“This enlarge¬ ment of wealth from £2,500,000,000 to £6,000,000,000 was either a greater quantity of the productions before named, or an ability to produce a greater quantity; that this addition of £3,500,000,000 to the national wealth was nothing more than a greater stock of all articles of consumption and use, and the increased power which the nation possessed, in the shape of improved land, machinery, and implements, to produce in larger quan¬ tities periodically, all the articles necessary for man’s subsistence and use. Money itself, though forming but a small and insignificant portion of this wealth, would likewise exhibit an increase. The amount of gold and silver at the first period, in coin and plate, did not 17 probably exceed £50,000,000 : it now in all probability approaches £100,000,000. Let the mention of this last item be duly pondered over, and let it teach a necessary lesson to those who are misled by the mistaken notion that money forms the wealth of the individual or the nation. We see how far it does so, nationally speaking ; we see what it amounts to : it is £100,000,000 out of £6,000,000,000 ; there are 5,900 millions, not money, but money’s worth, and 100 millions money. It would be a sad day for those who consider themselves worth their £10,000 or £20,000 a-piece, if there were no other stock in the country to justify their title to be considered persons of property than the mere money of the country ; for this, equally divided, would not amount to more than £2 per head.” This appears to be a clear statement of the amount of coin, bullion, and plate; and it is marvellous to reflect how small a proportion it bears to the national wealth. It is evident that the resources of this country consist almost exclusively of industry and enterprise, and that our gigantic capital would soon disappear if the credit of the empire were endangered. Free Trade is now so firmly established, that all apprehension of any national convulsion has long ceased to exist. Fears have been sometimes expressed that our productions were so ex¬ cessive, that no profitable markets could be much longer found for them; but such fears are altogether ground¬ less. Capital soon adjusts itself, and fortunately each year opens new fields for its investment. No free coun¬ try possesses more capital than it can employ beneficially, and there is no danger of a glut of manufactured com¬ modities at present, even if we had not, through im¬ proved cultivations of land, and the formation of Rail- 18 ways created a demand for an almost unlimited amount of capital. In a powerful and highly civilized country, wants, either for objects of necessity or luxury, are unli¬ mited, and the employment of capital depends chiefly on the ability to supply food and necessaries to the increasing number of operatives requiring to be provided for. The annual income of the country, if reckoned in money, although it really consists of the produce of the land and the skill and industry of manufacturers, may be taken at £500,000,000. Assuming the population to be 30,000,000, and allowing five individuals to form on the average one family, it follows that there are 6,000,000 families to divide £500,000,000 sterling, or £83. 6s. 8d. per annum for each family of five persons. The public are much indebted to Mr. Capps for the clearness with which he has recorded the preceding infor¬ mation, and it will be seen that the amount of capital available for Joint Stock enterprise is almost fabulous. The principle of “ unlimited ” liability is now so gene¬ rally condemned, that it may be considered almost a waste of time, to allude to the possibility of ever reverting to a system which was found to work so injuriously, both for debtors and creditors ; but it may be well to allude to some of the more glaring evils, for the purpose of showing that the welfare of the public required its abandonment. Under the system of “unlimited” liability, an insolvent Company might, in some cases, be carried on for an almost indefinite period. Accounts were frequently withheld for years, and Shareholders had no means of knowing the extent to which they might be involved by fraudulent Directors, who were making continuous Calls, after the Company became hopelessly insolvent, and who thus drew fresh supplies of capital for the purpose of dividing it among themselves. The formation of Railways first showed the fallacy of the principle of “ unlimited ” liability ; and these vast enterprises could never have been matured if it had not been provided, that proprietors should not be held liable beyond the extent of the Shares for which they had subscribed. When a Shareholder was held responsible, to his last acre and his last shilling, for the whole debts of a Company, although he might only possess a single Share, it seems strange that sane persons could ever have been induced to run such an interminable risk of losing their whole fortunes for the chance of securing a high rate of interest on surplus capital; but it must be remembered that the more wealthy proprietors by no means incurred the risk which attached to small Shareholders. A millionaire knows how to protect him¬ self, and, whenever he joins a Company, generally takes care to keep strict watch over the establishment in which he embarks his property, and he calculates that in a certain number of years he will cover his outlay; he, therefore, sees no objection to a small risk. Under the old system, if a concern were profitable, he took the gains ; if it proved a bad speculation, he quietly made over his Shares to some third party who had nothing to lose; consequently, when the capital was entirely exhausted, the establishment was closed, and the creditors, finding among the subscribers no persons of substance, considered it hopeless to sue, as the names on the list of Shareholders held out no prospect of securing even the expenses of law proceedings. The evils of “ unlimited ” liability are far too numerous to be recorded; and as there appears to be no chance of restor¬ ing this exploded fallacy, it will be wiser to endeavour to remedy the defects of the present system of “ limited ” 20 liability, which, having been established so lately as 1856, is still merely in its infancy, and therefore necessarily open to abuses, which can easily be rectified by time and experience. Shareholders have the option of registering either with limited or unlimited liability, and they can choose which form they consider most likely to promote their own inte¬ rests. If they prefer unlimited liability, or in other words a private partnership on an extended scale, there is no reason why they should not adopt it; but with the warn¬ ings of the insolvent banks during the last three years, it appears improbable that people should be so infatuated. Railway Companies could never have succeeded in obtain¬ ing nearly four hundred millions sterling , if the responsi¬ bility of Shareholders had not been clearly defined; and the Telegraph Companies might have been kept back for another century if the stimulus afforded by the Joint Stock Companies’ Act of 1856 had been withheld. Great national achievements can only be carried out by a com¬ bination. Railways, Docks, Insurance Associations, Water Works, Gas Works, and other enterprises of similar magni¬ tude, are altogether beyond the reach of individuals, how¬ ever wealthy. Large factories or other establishments may, in some cases, be carried on more successfully by a private firm than by a Company, but so far as the public are concerned, it is a matter of indifference whether a private firm or a Joint Stock Association carry on the business ; the object is to get the best article at the lowest price, and whether the profits are divided between three or four persons, or between three or four thousand, con¬ cerns only those who embark their capital. The commu¬ nity is solely interested in getting the most for its money, and has no concern in any private arrangements for 21 accomplishing that end. It would appear that capitalists generally favour unlimited liability, and that the public insist on breaking down and utterly destroying the mono¬ poly which unlimited responsibility is presumed to create. The question maybe safely left to work out its own solution. The principle of limited liability is now too firmly estab¬ lished to be endangered by any combination of those who, in a mistaken zeal for protecting the supposed rights of capital, have uniformly opposed every attempt to give the middle and working classes an opportunity of investing the fruits of their industry and economy according to their own inclinations. The latter have, after many years’ struggling, secured a boon which they will soon learn how to appreciate, and if the working classes choose to invest their surplus funds in insecure Companies, they must suffer the consequences. They do not now risk all they possess as they did in former times ; they place out, what they can spare, in the manner which they consider most likely to yield a profitable return, and they have as much right to do so as their more wealthy competitors. The Joint Stock Companies’ Act of 1856, so far from having proved a failure, has shown that enterprises con¬ ducted on the associative principle may be almost indefinitely multiplied with advantage to the public. That bubble Companies have sprung up, and that several instances of gross fraud have been exposed, cannot be denied or disputed ; but with every great change there must be some temporary inconvenience, and the wonder is, not that some needy adventurers have been enabled to impose on the community by visionary schemes, but that in so short a space of time the benefits of the asso¬ ciative principle should have become so apparent. Those who by thrift and carefulness have amassed a few hundred 22 pounds, have now the means of turning this capital to profitable account. Formerly the more prudent con- it tented themselves with what Lord Stowell called “ the sublime simplicity of the three percents.;” but the aspira¬ tions of many, who have watched the success of men beginning the world with nothing, and becoming large capitalists, lead them to desire a participation in Joint Stock enterprises which hold out a prospect, not merely of securing a high interest on the capital invested, but of being themselves active partners in large national under¬ takings. H. L. MORGAN, Public Accountant . 74, Cornhill. E, C. May, 1859. \ M, S. Rickerby, Printer, 73, Cannon Street. E, 0. 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