THE CAMPAIGN FOR LIMITED LIABILITY COMPANIES IN ENGLAND
- 30 Mar 2016
The fall-out of the 2008 financial crisis has seen calls for bankers to be made personally liable for institutional losses, which would cancel the protection now routinely provided by the limited liability company. In mid-Victorian Britain, however, obtaining limited liability was akin to obtaining a divorce – technically possible but difficult and expensive. Anyone wishing to set up a limited company in England needed a parliamentary Act or a Board of Trade charter.
This changed dramatically in the mid-1850s. Sources that have recently come to light show that behind the change was one man in particular, forgotten today, who decided to make it happen. Research by Julia Chaplin, to be presented at the Economic History Society’s 2016 annual conference in Cambridge, recounts this story of a pivotal clash between two generations of capitalists.
When a new parliament met in the autumn of 1852, limited liability was not on the agenda. The subject was raised however, when William Brown – ship-owner and Liverpool MP – asked that details of a recent charter application by the North American Screw Steam-ship Company be made public. He hoped this would encourage the Board of Trade to refuse the charter – and refuse permission for the company to raise capital from investors protected with limited liability.
Brown's request annoyed Board of Trade President Joseph Henley. He was inclined to favour the company's application, including as it did a proposal to connect Britain and Canada by steam. While a decision was pending, he said, no papers would be released.
One of the men behind the charter application was Robert Lamont, a Liverpool-based Scottish ship-owner, and instigator of its Canadian contract. He had now upset some very big fish. Samuel Cunard joined Brown in opposition, and claimed the Canadian angle was a mere pretext for an attack on him. The new company also planned to operate screw steamers on the New York/Liverpool route, where Cunard enjoyed a monopoly, backed by a British government mail contract.
The result was a public row and a pivotal clash between two generations of capitalists. This was partly a question of age: Cunard was 56, Brown 68, and Lamont just 33. More importantly, it marks the point when capital-raising practices familiar today took on – and overturned – a personal financial tradition.
The story of how this happened has remained largely hidden until recently. Henley gave verbal approval for a Canadian line charter, but the North American company held out for one also covering the contentious New York/Liverpool route. This strategy came unstuck when, a decision still unconfirmed, the government fell, and Henley was replaced by Edward Cardwell, a conservative on limited liability. On 22 February 1853, a charter was refused.
This had seismic repercussions. Lamont was furious with the politicians who had failed to support him – 'sneaks all in my opinion!' – and later gave a colourful account of his rejection meeting at the Board. His equally angry solicitor, Edwin Field, told Cardwell 'he would never rest until the law was altered', and when the two men left the meeting, still 'smarting', they went directly to the House of Commons to elicit the support of MP Robert Lowe.
That day, the three formed a league, the motor behind a parliamentary and press campaign that continued for several years until the law was changed. The league's activities were bankrolled and coordinated by Lamont, although no one but Field and Lowe 'knew who was pulling the strings'.
We would not know either if Lamont had not written letters in old age, which have ended up in a Board of Trade file and shipping archives. As Lamont himself said, but for this, 'the world would never have known' what he did.
A Victorian secret: the campaign for limited liability companies in England
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