Company law reformers in England during the 1850s made a simple argument to legislators and the public: Organizational choice was a moral need in a competitive market economy. The passage of the Industrial and Provident Societies Act (1852), the Limited Liability Act (1855), the Joint Stock Companies Act (1856), and the Partnership Amendment Act (1865) radically transformed the menu of organizational choice available to entrepreneurs from the working and middle classes.Footnote 1 Before these changes, cooperatives had no formal legal recognition and partnerships were subject to unlimited liability. The privilege of incorporation with limited liability was available only by petitioning Parliament or the Board of Trade. Broadening organizational choice proved popular: More than 5,000 companies registered as corporations in England during the decade following the watershed acts of 1855–1856 compared to 910 during the preceding period.Footnote 2 While historians have previously focused on explaining the reform of cooperatives, partnerships, and corporations separately, this article investigates company law reform during the 1850s taken as a whole.Footnote 3 A broader perspective demonstrates that a single influence network, the Law Amendment Society (LAS), led reform during the 1850s in Britain. Socialist and liberal members of the society agreed that entrepreneurs from all classes, especially the working and middle classes, should have access to the same forms of business organizations to establish a fairer playing field for economic competition. Fair competition was presented as a moral good and a balm to sooth grievances among the working classes while creating new opportunities for investment and commercial growth. The logic of fair competition explains both the changes in organizational forms during the 1850s and provides a window into the moral economy of mid-Victorian capitalism.
These arguments contrast with the functionalist interpretations that have predominated as explanations for company law reform in Britain. Early historians identified modernization as the driver of change, as legal and political elites finally acknowledged the needs of an industrial economy for large-scale capitalization.Footnote 4 Recent accounts argue similarly that reform represented a legislative rebalancing of commercial and legal realities that had become unconnected with the institutional infrastructure.Footnote 5 While an increase in the availability of investment funds may have been the consequence of company law amendment, however, reformers rarely argued that the British economy lacked access to capital.Footnote 6 Many business elites opposed general incorporation and limited liability, worried that the widespread adoption of the corporate form would promote fraud and speculation, or perhaps, as was claimed at the time, would threaten their own entrenched interests.Footnote 7
Another line of investigation has focused on the needs of middle-class investors. J. B. Jeffreys proposed that reform followed from the efforts of a lobby of home county investors who were searching for safe, domestic outlets for their capital. Change was therefore not a consequence of the need for bigger, more efficient companies, but rather followed from the growing influence of middle-class, petty capitalists.Footnote 8 However, there is no evidence of an organized investor pressure group, and the problem appears to have been the low yield, rather than the availability, of secure domestic investments.Footnote 9
There was, however, one discernible, organized lobby: John Saville, Torben Christensen, and Rob McQueen have described the efforts of reformers who argued on behalf of working-class entrepreneurs seeking to capitalize new businesses and cooperatives.Footnote 10 Saville explored the efforts of Robert Slaney, a member of Parliament and social reformer who argued that the intricacies of both company law and the land law favored the well-off.Footnote 11 In these efforts Slaney found allies in the Christian Socialists, a loose group inspired by the cooperative message of the Gospels to reform capitalism along Christian principles.Footnote 12 McQueen has traced how these arguments for reform were cast in the language of “social justice” for the middle and working classes.Footnote 13 But in these accounts, the Christian Socialists and Robert Slaney all but disappear after 1852 when cooperative societies received basic legal protections. P. L. Cottrell argued that by 1854 the “momentum given to reform by Slaney, the Christian Socialists, and the Society for the Amendment of the Law had been dissipated.”Footnote 14 Free traders then took up the agenda in the Parliament of 1855, and as Saville has argued, “the issue was placed squarely in the context of the arguments for laissez faire.”Footnote 15
Donna Loftus has elaborated on the significance of this shift to laissez-faire. Working-class concerns had been the initial impetus for reform, but as the debates had evolved by 1855–1856, the use of moral language became less frequent. The technocratic language of utilitarianism came to predominate instead.Footnote 16 As Loftus observes, following Mary Poovey, the emergence of limited liability firmly demarcated “the economic” as a space “free from moral values.”Footnote 17 For Loftus and others, the cardinal evidence of the disregard of working-class interests during the later debates were the onerous requirements for incorporation under the statute of 1855, especially the minimum value of company shares set at £10, “well beyond the capabilities of most working-class men.”Footnote 18
This account of company law reform fits neatly into an established narrative of creeping liberalization that peeled away the older, moral economy described by E. P. Thompson.Footnote 19 Historians of Victorian Britain, however, have also investigated contemporary concern about how markets intersected with other moral systems, especially religion.Footnote 20 For example, in her exploration of consumer culture and credit, Margot Finn has explored how traditional moral practices moderated or persisted alongside the spread of mechanistic ideas about markets.Footnote 21 Boyd Hilton has argued that optimistic ideas about unlimited growth superseded evangelical beliefs that the market was an arena of temptation and punishment in the 1850s.Footnote 22 Cleared of impediments to its natural functioning, market mechanisms could operate freely to impose economic and even moral discipline, in the liberal account, creating prudent and industrious actors.Footnote 23 This approach suggests that markets themselves generated expectations about moral conduct. Yet Paul Johnson has also influentially interpreted law reform as an instrument not of liberation, but of class domination. Corporate law reform, in particular, created new distortions in favor of the wealthy.Footnote 24
In sum, accounts of the “sudden and sharp break” marked by company law reform have relied on several assumptions.Footnote 25 First, the campaign is usually narrated as a relay. Events move from an optimistic, socialist phase of reform to a liberal end. Groups of reformers run independently, successively yielding the initiative. Second, the historiography focuses largely on explaining the expansion of limited liability, but the advocacy for company law reform encompassed much broader changes in the forms of business organization. Finally, there is a conventional dismissal of the significance of moral language during the height of the debates over reform from 1855 to 1856.
Through a comprehensive reconstruction, this article recovers the central role played by the LAS in bringing about company law reform during the 1850s. The society’s involvement in reform has been noticed, but not explored in detail.Footnote 26 The LAS united those who campaigned for change, joining together socialists and liberals. Under the LAS umbrella, members carefully studied the issue of reform, lobbied the government for change, and led debates over legislation in Parliament. While the LAS was an organization seeking to influence policy, its membership gathered together a diversity of opinion. Consequently, members could and did dissent, even after an official position was approved by vote, and there was recurrent discussion about how to proceed with specific reforms. The story of company law reform as told through the history of the LAS is one of fits and starts, adaptations and adjustments, rather than a smooth, linear progression to the landmark legislation of 1855 and 1856.
The belief that reform would promote fair competition by broadening access to organizational choice united liberals and socialists in the LAS. Explicitly appearing from at least the seventeenth century, fair competition described a normative condition in which market actors competed on a level playing field by observing a shared set of rules, including laws, customs, and commercial practices or the “rules of the game.”Footnote 27 Fair competition also assumed that those rules would generally be nondiscriminatory among traders.Footnote 28 Government, however, could write the rules to create privileges, such as monopolies, on the grounds of public interest, but these were contestable using claims of fair competition. Fair competition therefore operated as more than rhetoric, rather as an “institutional logic.” Institutional logics are patterns of “assumptions, values, beliefs, and rules” that are flexible and generative of new meanings and “represent frames of reference that condition actors’ choices for sensemaking, the vocabulary they use to motivate action.”Footnote 29 They reflect taken-for-granted institutional patterns and rules that individuals can manipulate to reshape organizations, especially when they observe contradictions or deficiencies, or join logics from different domains such as religion.Footnote 30 So, on the one hand, claims about fair competition legitimized markets as spaces of “fair play,” even as critics might use the same logic to question legal or economic rules as unduly privileging one group or class over another. An institutional logics analysis of company law reform under the LAS reveals how sociocultural ideas can shape organizational change.
In the case of mid-Victorian company law reform, this logic held utility for persons from a range of ideological backgrounds to imagine and legitimize changes in company law and to argue for organizational innovation. Reformers used the logic of fair competition to capture the moral high ground from their opponents and to articulate a positive program of change for an economy composed of large and small enterprises. Opponents of reform had long claimed that restrictions on incorporation and the unlimited liability of partnership law were reasonable safeguards against fraud and speculation. Editorials explained how unlimited liability protected the rights of creditors: “Honesty demands that he who incurs a debt shall pay it.” Investors were no less partners if they undertook the business “through the agency of others.” The law was strict, no doubt, but it was just: While business failure might ruin partners, in the case of limited liability it would instead harm creditors. While a broader availability of limited liability might promote greater entrepreneurship, it also would simply have the “country plunged into a vortex of speculation.”Footnote 31
Socialist and liberal reformers countered that company law performed another function by tilting the competitive field toward established interests and capitalists who could afford the advantages of incorporation with limited liability.Footnote 32 Fair competition meant broadening access to business organizations, whether corporations, partnerships with limited liability for investors, or cooperatives to enable persons from different classes, though individually unequal in resources, to associate and participate more successfully in the market. The outcome, according to reformers, would produce increased economic wealth as well as a moral good: new economic opportunities for working- and middle-class entrepreneurs and investors would remove their grievance with an unfair system. Mid-Victorian company law reform therefore reveals how ideas of fairness have shaped organizational development as well as the significance of moral arguments to the legitimation of liberal capitalism.
The Legal Background to Reform
The restriction of incorporation and limited liability to the well connected, the economic jeopardy attending small entrepreneurs, and the few organizational vehicles available for adventuring, all spoke to the grievance of unfair competition. During the decades before the 1850s, company law underwent significant changes, and the LAS responded to a growing sentiment for reform to resolve these tensions.
While company law can be distinguished into separate rules governing corporations and partnerships, nineteenth-century lawyers recognized a close relationship between the two, sometimes describing corporations as “public partnerships” or “general partnerships.”Footnote 33 Unlike private partnerships, however, those who sought to incorporate their companies needed a charter or parliamentary act by which they might also receive important privileges such as limited liability.Footnote 34 The passage of the South Sea Company Act (1720) had threatened penalties for those holding forth or doing business as incorporated companies without a grant, prompting historians to describe the privilege of incorporation as a concession of the state under “bureaucratic lock and key.”Footnote 35 Judicial opinion, however, cautiously applied the statute, taking advantage of the scope for interpretation about whether company was “behaving as a corporation.”Footnote 36 Courts rarely heard indictments under the legislation, which some commentators described as “nearly forgotten,” until R. v. Dodd (1808).Footnote 37 Lord Ellenborough, who refused to allow the case to proceed, suggested a policy of selective enforcement of the South Sea Company Act to target company promoters who intended to defraud the public.Footnote 38 Judicial wariness accommodated unincorporated joint-stock partnerships that were often designed to replicate certain features of formally incorporated bodies.Footnote 39 To avoid making these associations liable to indictment, subsequent cases circumscribed the operation of the act and the common law offense to those promotions that “tend to the common grievance of great numbers” and were organized with shares that were transferable without restriction.Footnote 40
Parliament repealed the South Sea Company Act in 1825 and the Crown was assigned discretion to confer some of the attributes of incorporation on bodies of petitioners. This power was delegated in 1834 to the Board of Trade and expanded in 1837 with the allowance of limited liability to these associations.Footnote 41 The board, however, only cautiously granted these charters to large-scale, public interest projects. The petitioning process was cumbersome and expensive as was obtaining full incorporation through parliamentary act. Parliamentary committees (1841–1843) led by William Gladstone investigating the relationship between corporations and fraud prompted the passage of the Joint Stock Companies Act (1844). This permitted the corporate registration of partnerships whose members agreed that their shares might be freely transferable and required incorporation for partnerships of twenty-five members or more. In neither case did the act grant limited liability. By 1849 Francis Whitmarsh, the registrar, had already identified numerous defects in the process, suggesting the need for further reform.Footnote 42
Given the barriers to incorporation, most businesses were conducted as partnerships. Whereas reform of incorporation had been underway since the 1820s, there had been almost no formal change in partnerships. These had also begun to appear inadequate to accommodate a broader participation in entrepreneurship and investment. Liability under the law of partnership was strict, especially in its insistence upon the unlimited liability to their “last shilling and acre” of anyone identified as a partner.Footnote 43 It was the scope of this unlimited liability that drew the attention of reformers, because investors, trustees, and even employees might be encompassed as partners.Footnote 44 Yet, as critics liked to observe, the line of legal precedent defining partners and their unlimited liability was surprisingly short. The leading authority was Waugh v. Carver (1793). Sir James Eyre, chief justice of the Common Pleas, made clear in this case that there would be no limitation of the liability of those who either held themselves forth as partners or who took varying returns from the profits of the concern, as they drew upon the fund that was the creditor’s security.Footnote 45
The legal reality of the unlimited liability of partnerships was more complex, and canny investors or partners might establish limited liability either de facto or by contract. It was, for example, often not possible to pursue all the shareholders in larger partnerships, and so smaller investors might be sheltered.Footnote 46 Partners could also contract with their creditors to limit liability—a well-established practice in the insurance industry.Footnote 47 The Chancery, meanwhile, was developing means to establish liability protection, as Joshua Getzler and Mike MacNair have explored.Footnote 48 But these means each had limitations and might be risky, exposing dormant investors, who took returns varying with the profits of the company, to unlimited liability.
Reformers thus hurled several criticisms against company law: Incorporation was cumbersome and expensive, and partnership law inhibited investment in smaller concerns by dormant parties. Moreover, new forms of business organizations were coming to prominence unaccommodated by the law.Footnote 49 The same year as Gladstone’s efforts to reform corporate law, twenty-eight persons formed themselves into the working-class Rochdale Society of Equitable Pioneers (1844) to begin cooperative trading.Footnote 50 Although the Friendly Societies Acts could shelter such associations, if they traded outside their membership—almost a certainty—they would lose this protection and might be exposed to penalties.
In 1837 the lawyer Bellenden Ker was charged with preparing a report for the Board of Trade on the state of the partnership law, which broadly considered reforms for both partnerships and corporations. Ker closely analyzed the French system of en commandite partnerships, which permitted dormant partners to limit their liability to the extent of their investments. Established arguments against limited liability were aired by many of those whom Ker interviewed: Unlimited responsibility was beneficial for “promoting prudence and vigilance,” in contrast to the “tendency which the sense of limited responsibility has to elicit the spirit of gambling.”Footnote 51 But Ker also noted in his conclusions that the arguments against limited liability included the claim that there did not exist “any evil of serious amount which the proposed change would remove.” Capital was available to those who needed it throughout the country. Therefore, the introduction of limited liability for partnerships would provide no advantage, and instead introduce a tendency toward fraud—a moral evil.Footnote 52
Already, however, those who sought reform were developing arguments that enabled them to take the moral high ground and provide a positive case for reform. They argued that unlimited liability, although represented as a natural principle of accountability, was of recent invention and frequently disregarded by the government’s grants of incorporation.Footnote 53 Rebutting those who warned about the moral hazards of expanding limited liability, reformers claimed that unlimited liability promoted frauds by discouraging due diligence.Footnote 54 But simply denigrating unlimited liability was not enough. Fair competition provided a positive argument for change, because reforms that widened the distribution of capital would introduce greater opportunity into the market and better economic outcomes. As several witnesses in Ker’s report had already noted, investment capital was not always available to the humbler classes, preventing the uniting of skill with capital. Reform would enable, as the economist Nassau Senior observed, associations of “persons of small capital” to compete against entrenched capitalists who held “a sort of monopoly.”Footnote 55
Cecil Fane, later a leading member of the LAS and its company law reform efforts, refined these arguments in Reference Fane1845 to argue for organizational choice. Fane took up the distribution of capital argument, explaining that while there was certainly money available, because of the condition of company law, there was little investment for entrepreneurial efforts among the humbler classes: “Against enterprise there is established by law a reign of terror, as if enterprise were a public mischief.”Footnote 56 The law created conditions of unfair competition and widened the class divide. As Fane observed, the likely reason that “rich men are growing richer, [and] poor men are growing poorer” was because “every facility is given to rich men, carrying on established trades to obtain additional capital on easy terms, and every impediment thrown in the way of the comparatively poor and enterprising getting it at all.”Footnote 57 Fair competition thereby provided a logic of reform. The “great public mischief” was a rigged system, and the solution was to broaden access to the organizational resources that were available to wealthier individuals.Footnote 58 Reformers understood that association for the working and middle classes could assume many forms—partnerships, corporations, and cooperatives—and so their project was multifaceted. Limited liability worked in different ways within these organizations: Reformers did not initially seek limited liability for cooperatives or to protect active partners in partnerships. What they wanted, as they constantly reiterated, was the means of association.
The Reformers Organize: The Law Amendment Society
The LAS was the vehicle through which these lawyers and their allies took up these arguments for fair competition and lobbied for change. Patricia Hollis, Lawrence Goldman, and others have explored the importance of societies like the LAS in Victorian Britain and the emergence of pressure groups that mobilized public opinion to pursue social and economic reform.Footnote 59 Goldman examined the successor to the LAS, the Social Science Association, which functioned within the mid-Victorian polity as a mechanism to connect elite expertise with the high politics at Westminster. In the absence of a sophisticated bureaucracy, organizations such as the SSA provided government with needed social science information.Footnote 60 James Stewart and William Ewart, two MPs who would lead efforts at company law reform, and Matthew Hill founded the LAS in 1844 to fulfill this function.Footnote 61 The mission of the society was explicitly “progressive” and was “to assist all useful reforms in the Law” by collecting information, debating the merits of reform proposals, and working to influence government or draft legislation.Footnote 62 The society functioned as a clearinghouse of “inquiry and deliberation,” using its committee structure to gather information in order to formulate policy and report back to the membership.Footnote 63 Alongside this process members also gave readings at regular meetings that spoke to controverted issues. After plenary debate and the review of a committee’s report, the society would vote on a position and advocacy might follow. Lord Brougham, a mercurial but reform-minded politician who was the society’s president until he founded the SSA in 1857, later recollected that “most of the bills I have brought forward … either originated” in the LAS’s committees or were indebted to its aid.Footnote 64
Members included lawyers, of course, but also merchants, those in industry, and “other classes of the community.”Footnote 65 An ecumenical membership kept the society informed about public opinion and provided expertise in business that could be communicated to government.Footnote 66 The projects of the LAS ranged across the law, and included improving Chancery process, divorce, penal law, and resolving the intricacies and confusion of the land law.Footnote 67 The society took an active interest in its own publicity, relaying many of its proceedings through publication and seeking to establish law reform as an important public issue of the day.Footnote 68 The membership of Henry Mayhew, editor of the Morning Chronicle, and Robert Lowe at the Times aided the LAS in these purposes.Footnote 69
The society was the central nexus for company law reform of partnerships, corporations, and cooperatives. Nearly all of the leading figures in the campaign to change company law were members of the LAS, despite divergent political leanings: Socialists like Robert Slaney and Edward Vansittart Neale found fellowship with free traders including Richard Cobden and Robert Lowe.Footnote 70 Most of those who led company law reform were also active in the society as officers: in 1855 these included government ministers like Lowe (vice president of the Board of Trade), Sir Alexander Cockburn (attorney-general), and Sir Richard Bethell (solicitor-general). Cecil Fane was also deeply involved in the LAS, as was Edwin Field. Field had taken a long-standing interest in company law reform and prepared the proposals to the Board of Trade that led to the Joint Stock Companies Winding Up Act (1848).Footnote 71 Joining them in the vanguard were lawyers and politicians including Andrew Edgar, William Ewart, Thomas Headlam, James Stewart, Robert Collier, and Owen Tudor.Footnote 72 By 1856 all of these individuals served either on the LAS’s council or as vice presidents of the society. The society could also count among its number many prominent individuals, including judges and aristocrats like Viscount Goderich. By 1852 the society trumpeted that enough of their members had been returned that a “LAW REFORM PARTY” had emerged in Parliament, and explicitly noted the prominence of Cockburn, Bethell, and Lowe in the ministry.Footnote 73 In 1856 the society claimed thirty-six members returned to the Commons, and this number at one point approached fifty.Footnote 74 The LAS demonstrates how interest groups could actively shape the legislative agenda and, through the direct involvement of its membership in Parliament, undermines a sharp distinction between outside pressure groups and MPs.Footnote 75
The society entered into discussion of reforming corporate and partnership law on January 12, 1848, when a committee was struck that included Fane, Headlam, Stewart, and Neale.Footnote 76 From the beginning arguments for organizational reform were based on fair competition, which was cast as a positive, progressive program of change.Footnote 77 Society publications explained that the need for reform was acute because of historical change or the “enormous increase of national wealth, and the corresponding complexities.” The playing field had shifted: Old legal institutions and rules were no longer suited to the new economic realities of a wealthier population, especially among those in the skilled trades and laboring classes who sought greater commercial autonomy.Footnote 78 In 1848 Robert Wilson, a solicitor, gave a paper arguing for the introduction of en commandite partnerships.Footnote 79 Reforms to allow organizational choice, Wilson explained were needed for fair competition so that “small people may make head against the monopolizing tendency of powerful firms.”Footnote 80 The following year, on February 26, 1849, the subcommittee presented its reports on both sides of the issue to the membership and debate followed at several contentious meetings.Footnote 81 Neale was the principal author of the report that advocated for partnerships in which dormant partners could avail themselves of limited liability if they registered the amounts of their investments. The report surveyed international models of en commandite partnerships, noted that speculations and frauds also occurred under the present partnership law, and drew attention to successful ventures both in Yorkshire and abroad of “small capitalists.”Footnote 82 Meanwhile, the report against reform urged eleven reasons, warning of speculation and frauds arising from the breach of the principle of unlimited liability, and emphasizing that the change was not demanded by the “commercial classes” nor was there any need for capital. The harms would exceed the expected benefits: The authors rested their case not only on the dangers arising from reform, but the lack of a positive case for change.Footnote 83 The society, however, approved resolutions in March 1849 to support reform of the rule by which liability could only be limited by “special sanction of the government,” and specifically urged the adoption of en commandite partnerships in Britain.Footnote 84
This work of the LAS on company law reform had immediate application in the campaign to obtain legal protection for cooperatives and to widen the opportunities for organizational choice among the working classes. The Christian Socialists, a loose group around Frederick Maurice and Charles Kingsley that included the lawyer John Ludlow, led this initiative.Footnote 85 The revolutionary events of 1848 and Henry Mayhew’s reporting on the terrible conditions of the working poor in the Morning Chronicle in 1849 had galvanized Ludlow and other Christian Socialists to establish the Society for Promoting Working Men’s Association (WMA) in June 1850, an umbrella organization for cooperative societies. Informed by French socialist ideas and Christian principles, the WMA advocated for cooperatives to facilitate working men pooling their small funds to compete against established capitalists.Footnote 86 From the beginning the relationship with the LAS was close. Two members of the LAS, Neale and Lord Goderich, leaders in the society’s company law reform efforts, joined Ludlow on the WMA’s Council of Promoters.Footnote 87 The relationship was also reciprocal and long-standing: Maurice and Kingsley later joined the inaugural council of the Social Science Association.Footnote 88
Publications by Christian Socialists also developed a historical interpretation that explained why the legal system distorted the economic playing field.Footnote 89 Ludlow and Neale described a dialectical and cyclical view of history in which oppressive forms of economic power contended with cooperation. In the present day “a class had been excluded from the benefits of trade and commerce, which had a right to share in them.”Footnote 90 The cooperative was set to resume the cycle of transformation by demonstrating how middle- and working-class entrepreneurs might enter the market on an organizational footing with established interests.Footnote 91 Articles in their journals queried, “Are we not trying how far the accumulation of small capitals can compete with the large capitals of individuals?”Footnote 92 Similar to the claims made by the LAS, Christian Socialists cast organizational reform as a moral act to restore fair competition and supersede the harsh scramble for wages and profits that was “destructive to the morality” of both the working and capitalist classes.Footnote 93 By identifying the grievance and revealing the solution, the logic of fair competition enabled socialists and liberals to find common cause for reform.
Christian Socialists also argued for the reform of the law beyond cooperatives—they shared with the LAS a desire for a thoroughgoing expansion of access to organizations. Ludlow and the WMA’s reforming program included the “relaxation of those restrictive laws of partnership, by which the working-men at least are prevented from doing what they like with their own.”Footnote 94 The system of incorporation under the 1844 act was also deficient, “cumbrous and harassing,” not to mention expensive.Footnote 95 Organizational reform would include cooperatives and limited liability protection for investors who would back working-class entrepreneurs along the model of French en commandite partnerships. Neale and other members of the WMA lived their principles and invested in working-class schemes.Footnote 96
Measures to promote opportunity of organizational choice would enable fair competition:
We seek for no privileges… [only] … leave to compete; we say that the fight, as it now takes place, is not fair, that the dice are loaded; that whilst association for large capitals is easy, is practicable, though costly, for small ones for labour it is all but impossible; and we ask, as Englishmen have been wont to ask at all times, for a fair field and no favour.Footnote 97
Having developed a positive case for change, the LAS and Christian Socialists only needed an opportunity to tell their story and fight for a “fair field.”
Parliament and the Campaign for Company Law Reform
Robert Slaney provided this chance when he raised the issue of company law reform in Parliament in April 1850. By this time considerable study had taken place within the LAS. Slaney’s address to the Commons took up the society’s arguments. He urged company law reform that would allow the humbler classes the same access to organizational forms and limited liability protection enjoyed by capitalists. He explained that he did not “ask for any advantages for the working classes which were not enjoyed by other classes.”Footnote 98 Slaney adapted the LAS’s historical narrative of institutional change explaining that the prosperity of society had resulted in a swell of savings among the humbler classes who were in need of outlets for their entrepreneurial ambitions. Company law, however, restricted this freedom while upholding the privileged position of capitalists.
The issue was more than utilitarian: It was moral. His notes for a speech to the Society of Arts in 1854 reveal Slaney’s raw disapproval of the “unfair partnership law” and its “legal penalty of ruin.”Footnote 99 He explained that the law, “favors [the] capitalist not fair to middle and industrious.”Footnote 100 The effect of an immoral law, Slaney argued, was the checking of enterprise and industry, foreclosing investment opportunities for “moderate and small capitals” impeding the “reward of faithful servants, clever workmen, [and] useful discoveries,” and more disturbingly, “a greater moral evil” for the social discontent and embitterment among classes.Footnote 101 Reform, by giving “fair play,” would provide “Benefits[,] great and numerous[,] of Fair Competition of all Capitals” and stimulate “the improvement of the Social Condition of the middle and working classes.”Footnote 102
Lord Goderich seconded Slaney’s motion in Parliament in 1850 and also pointed to the unfair advantage or “protection” given to large capitalists by the law. Other members of the LAS joined in support, especially Cobden, who observed that enthusiasm for reform was to be found in the class of “mechanics and artisans” who sought investments to start their own businesses.Footnote 103 The House voted in favor of a committee, and in that forum the work of the WMA and LAS found its voice. Ludlow would subsequently attempt to take credit for directing an otherwise rudderless project toward the useful end of cooperatives.Footnote 104 But Slaney was already determined to take up the LAS’s agenda for en commandite partnerships, later asking Lord Brougham to testify for the purpose of changing the law of limited liability for the combination of small capitals.Footnote 105
Appearing before the committee in May 1850, Ludlow and Neale reiterated that reforming the law of association was of particular concern to the working classes. Existing means were insufficient, because corporate registration was too expensive and difficult to pursue “to afford the public a fair recourse.” Given their minimal capital and economic precarity, limited liability was “absolutely necessary” for working-class associations. The working class wanted only what others in the wealthier classes already had: “They want a simple mode of putting themselves straight with the law.”Footnote 106 Whenever wealthier people sought to join together as a company, they often obtained a charter of incorporation.Footnote 107 Granting the working class the right of association with limited liability would be an “experiment,” true enough, but one that had already been pursued by the Rochdale Pioneers and associations of London tailors.Footnote 108 Even failure, however, by offering a “fair chance” to the working class would remove their criticisms of the law as a class instrument.Footnote 109 Neale provided the committee with a copy of the LAS’s report on the partnership law, explaining that his own expertise in the matter had been developed through the debates at the society.Footnote 110
The committee concluded that the “difficulties which affect the law of partnership operate with increased severity in proportion” to the smallness of the association.Footnote 111 Reforming the law by lowering the expense of charters of incorporation would be particularly agreeable to the working and middle classes “and would tend to satisfy them that they are not excluded from fair competition by laws throwing obstacles in the way of men with small capitals.”Footnote 112 The committee’s deliberations revealed a broad consideration of different organizations that could enable smaller associations of entrepreneurs and investors to compete in the market: cooperatives, en commandite partnerships, and general incorporation with limited liability.
Having secured support for his opinions, Slaney in February 1851 successfully moved for a second committee specifically to inquire into the law of partnership. Once again Slaney publicly urged that the law should give “fair play” instead of driving capital into the hands of the wealthy.Footnote 113 Other LAS members joined Slaney on the second committee, including Cobden, Ewart, and J. A. Smith. Several of those who had debated company law reform within the LAS were also heard as witnesses, including Stewart, Fane, Field, and William Hawes. The eventual report of the select committee explained that the law of business organization had diverged from social conditions, which “renders it more necessary that corresponding changes in the law should take place.”Footnote 114 The law of partnership needed “immediate revision,” and the committee recommended the formation of a commission empowered to do so. Importantly, the committee suggested that lenders be able to provide money at a rate of interest varying with the profits of a company, but that their claims would be placed behind all the other creditors. This would negate the rule in Carver v. Waugh at one stroke. Alongside cooperatives, en commandite, and general incorporation with limited liability, a fourth and simpler path to reform had been identified—as reformers would memorably put it, by “tranquilising the ghost of Waugh v. Carver.”Footnote 115
The contribution of Slaney’s committees was threefold. First, he subsequently introduced the Industrial and Provident Society Act on March 18, 1852, from a bill drawn by Ludlow.Footnote 116 The act did not grant limited liability, but extended legal protection to trading cooperatives and facilitated the pooling of capital by working-class entrepreneurs. Second, the committees had recommended a full commission to inquire into the partnership laws, placing the responsibility with the government. Finally, the publicity of the committees had brought the issue of company law reform—broadly conceived—to the forefront of public attention. This, in turn, made the government uneasy about the standing of the law. Notably, Edward Cardwell, the president of the Board of Trade, who was opposed to introducing limited liability as a feature of the partnership law, mentioned in a memorandum in January 1853 that there was “a vague expectation out of doors” about the possibility of reform that demanded a clear statement of the government’s position.Footnote 117
Disappointment and Initiative in the Campaign for Reform
While Slaney did not stand for reelection in 1852 and the Christian Socialists pursued their cooperative project, the LAS continued to drive company law reform.Footnote 118 The society’s report in 1852 remarked positively on partnerships en commandite and the work of Slaney’s committees, and the LAS lobbied succeeding ministries. In February 1852 Lord Stanley of Derby briefly became prime minister and after receiving a deputation from his colleagues in the LAS, he sent them away with a “cheering promise” to consider the commission.Footnote 119 Keeping up the pressure, the LAS mobilized the opinion of the mercantile community through a conference on commercial law in November 1852 that concluded with a resolution in favor of a commission.Footnote 120 That same month, a dedicated lobbying committee within the LAS was also established, while Lord Brougham appealed to Lord Aberdeen, who had assumed the premiership in December.Footnote 121 In early 1853 Cardwell wrote to Aberdeen, again requesting that the cabinet take up the issue and noting his differences with the attorney-general, Cockburn (LAS), who was a supporter of reform.Footnote 122 Aberdeen replied on the nineteenth to confirm that the cabinet had finally agreed to a commission.Footnote 123
The society, having obtained its goal, was disappointed by the outcome.Footnote 124 The royal commission divided on the issue of partnerships with limited liability. The members specifically examined the possibility of en commandite, with the majority recommending that nothing should be done and suggesting that grants of incorporation might be handed to a new board.Footnote 125 An editorial in the Law Review, by then the society’s mouthpiece, scathingly critiqued the report. Far from ignoring the importance of working-class concerns, this was the very issue that the society took up by appeal to fair competition declaring that “the interests of the struggling talent of the ingenious inventor, of the skilful artizan and industrious mechanic, should not have been so lightly passed over.”Footnote 126 Members of the LAS were determined not to abandon these interests.
The LAS brought the issue to its climacteric in 1854. Robert Collier, a senior lawyer, liberal MP, and leading figure in the LAS, raised company law reform again in Parliament in June.Footnote 127 Collier described the privileged treatment of large capitalists and the issue of fair competition: “Could a state of things which gave a preference to a certain class of companies, by Act of Parliament or by charter, and denied the same advantage to all other classes of companies, be defended”?Footnote 128 With wider availability of limited liability “there would be a fair competition in the open market.”Footnote 129 Viscount Goderich added similar arguments about the inequities of the current laws, while Cobden observed that the onerous requirements of incorporation and the dangers of unlimited liability were tantamount to denying the hopes of the working class for a better life.Footnote 130 These arguments were also broadcast through editorials and contended over in provincial debating societies.Footnote 131
After Collier’s motion, ministers announced their interest in bringing a bill forward for limited liability.Footnote 132 Members waited with much anticipation, repeatedly querying the government as to the bill’s appearance.Footnote 133 Lord Stanley was particularly keen, at one point reportedly offering a presentation complete with diagrams to his fellow lords, “as if it had been a lecture at the Polytechnic Institution.”Footnote 134 But the Aberdeen government fell in early February against the tumult of the Crimean War, replaced by Lord Palmerston’s administration.
Conflict over the 1855 Bills and the LAS Shifts Tactics
The LAS’s opportunity was nonetheless at hand: Many of its members were in key positions in Palmerston’s new ministry and there was a strong representation in the Commons. Taylor has also described how the collapse of Strahan, Paul, and Bates, a private bank, due to fraud, “gifted the advocates of limited liability a devastating example of the inability of unlimited responsibility to secure honesty in commerce.”Footnote 135 The push for reform began in a congratulatory mood as Parliament gathered. Richard Bethell, the solicitor-general, attended the annual meeting of the society held in February 1855 and he presented the new government’s law reform agenda, which included partnerships with limited liability.Footnote 136 Bethell declared that “there is no subject of greater social interest or political importance than an alteration in the Law of Partnership” and moved resolutions in support of the same.Footnote 137 He urged that “[in the] meantime it is of great importance that the attention of this Society, which has been the pioneer of Law Reform, should be directed to a few of the more important topics, with a view to their becoming co-labourers with Parliament, and assisting in the settlement of any measures which may be introduced.”Footnote 138 These labors did not go smoothly.
The society mobilized its membership in meetings before the introduction of the bills. Debate over limited liability was reopened and extended to include consideration of whether the society should sustain its demands for the registration of dormant partners.Footnote 139 Opinion coalesced around a proposal of E. W. Field to simply “repeal” Waugh v. Carver and to treat the investor who took a varying rate of return from the profits as simply a creditor rather than introducing a new scheme of en commandite. Footnote 140 Field’s proposal and the ensuing deliberations within the society anticipated subsequent parliamentary debates. The key sticking point was whether or not notice of the investor’s loans should be provided through registration. Some members still believed that this was necessary to ward off frauds, while Field and Fane were against it, urging that such a system would introduce confusion and mislead investors with its false sense of security.Footnote 141 The society, by a slim majority on May 7, approved resolutions in support of Field’s scheme and made the investor a lender, but one who had to stand behind other creditors in case of bankruptcy.Footnote 142 The LAS’s commitment to these positions would ultimately delay passage of partnership reform.
Lord Palmerston, E. P. Bouverie, and Henry Fitzroy (LAS) brought in the bills to expand general incorporation with limited liability and to reform partnerships in England late in the session on May 25, 1855.Footnote 143 The two bills were complementary measures to broaden organizational choice: Larger, well-capitalized groups could incorporate, while smaller partnerships could also obtain limited liability. But it may have come as a rude surprise to the society that the bills had been written to placate concerns about fraud and attract greater support from conservatives. The joint-stock bill required minimums of £50,000 nominal capital and a share price of £25 to obtain a certificate of limited liability. The partnership bill imposed notice through a system of registration for loans to partnerships whenever the rate of return on those loans would vary with the profit.
Reformers from the LAS strenuously opposed both measures precisely because they were seen as a betrayal of working-class interests and fair competition.Footnote 144 Soon after the introduction of the bills in June, the society sent a delegation to the Board of Trade to urge amendment. They argued that the minimums should be withdrawn from the joint-stock bill.Footnote 145 The system of registration in the partnership bill was expensive and cumbrous and exposed lenders to severe penalties: “Erroneous” registration could result in unlimited liability or the entire loss of the loan.Footnote 146 The delegation reminded the board that the reason for the legislation was fair competition for the working and middle classes: “to afford to the working classes the same facilities for combination in enterprise … as the more wealthy classes in the community already possess.”Footnote 147 The joint-stock bill would defeat this aim with its high capital requirements and instead encourage people to organize within a flawed partnership structure. Field explained that registration might be understandable in a system where the loan of the investor might come into competition with those of other creditors. But the LAS had proposed that the investor should stand behind all the other creditors in case of default, and therefore registration was unnecessary. The delegation was also mindful that the introduction of one measure or the other might on its own skew competition.Footnote 148 The LAS urged the government to simply annul Waugh v. Carver, remove the minimums for incorporation, and thereby widen the organizational choice of entrepreneurs and investors.Footnote 149
The bills were thus contested on both sides. On the second reading of the Partnership Amendment Bill, Collier objected to the system of registration, while those hostile to the measure argued that without publicity there would be opportunity for frauds. These concerns explain the lapsing of the partnership bill, which has been understood as a consequence of its late introduction.Footnote 150 None of the leading LAS reformers rose to speak for the partnership bill. The dissolving of support among LAS reformers forced the government to decide which bill they would put their full weight behind. The LAS had wanted the repeal of Waugh v. Carver without registration as the means to reform partnerships, and the bill lapsed after July 24.
The LAS reformers may have thought that they had what they wanted in the joint stock bill. They had succeeded in amending the bill into a broad general incorporation and limited liability measure.Footnote 151 Commenting on the course of the bills, the Law Magazine later reported that this was a strategy held by some reformers: “To diminish the expense, and facilitate the obtainment of charters of incorporation, they contend would be practically the same thing as introducing the law of commandite partnerships.”Footnote 152 At the committee stage on July 27, Goderich had observed that the limitations in the bill for capitalization and minimum share price “[were] inconsistent with the argument that it was for the benefit of the many… [and] actually tended to create a new monopoly” by restricting incorporation to the very wealthy.Footnote 153 Goderich moved for an amendment to eliminate these requirements. He was supported by other reformers, and they made it clear that their concern was for the working classes. Ewart observed the “great argument” in favor of the bill was “that it would afford facilities to small capitalists for the employment of their money.” The intent was to create a simple organizational form, so that “the law was made equal to everybody … there would be one uniform law, and the Legislature would not be responsible for any advantages which one class of the community might enjoy over another.”Footnote 154 Goderich sensed the support of the House and moved to strike the requirement of a minimum £25 nominal share value and the minimum capitalization. The amendment to remove the minimum capitalization succeeded and the share value was lowered to £10 with only 25 percent paid up—£2 10s. The bill, moreover, permitted incorporations with no specific minimum of members, because it explicitly operated on the broader provisions of the 1844 Joint Stock Companies Act.Footnote 155 The drafting of the bill as passed to the Lords had opened up the way for both small companies and partnerships to incorporate with limited liability.
The House of Lords restored the limitations. Led by Lord Campbell and Lord Monteagle, opponents succeeded in amending the measure near the end of the session by threatening the bill’s delay and therefore loss.Footnote 156 When the bill was returned to the Commons on August 11 with only a few days to spare in the session, all the House could do was concede to minimums of twenty-five shareholders, capitalization of £20,000, and £10 nominal share value. Reformers in the Commons were outraged, arguing that the minimum of shareholders was “fatal to one of the chief objects of the bill.” Others suggested that the amendments be rejected even if the bill would be lost. But Bethell urged that by passing the bill Parliament accepted the principle of limited liability. Palmerston himself added that subsequent sessions would amend the law to ensure the “proper working out of the principles.”Footnote 157
Out-of-doors opinion and many historians have not appreciated the subtlety of parliamentary maneuvers, and it appeared that vested interests had triumphed. Far from debating the measures as dogmatic exercises in laissez-faire, supportive newspapers held up the passage of the legislation as a contest against those with a monopoly in capital and the working classes.Footnote 158 Edmund Potter declared that the bill had been intended for the benefit of “workmen, the weaker and small capitalists, by enabling them to club together small amounts to make a solid working capital.”Footnote 159 More dangerously, as the Legal Observer noted, the partnership law must also now be passed to level the playing field and prevent the joint-stock company from having “the monopoly of the limited liability principle.”Footnote 160 Fair competition and access to organizational choice continued to be the operative logic.
1856 and the “Sudden and Sharp Break”
The disappointment of the 1855 act and the failure of the partnership bill led to the introduction of new bills in 1856 by Robert Lowe, who worked with two other members of the LAS, Henry Thring and Thomas Farrer, to draft new bills.Footnote 161 Lowe introduced the bills by again associating their measures with fairness, rejecting the idea that incorporation ought to be a privilege for the few.Footnote 162 The Joint Stock bill required registration for companies of more than twenty shareholders, but permitted incorporation of any with seven or more. There was no minimum share price. Meanwhile the partnership bill dispensed with the controversial registration requirement, and Lowe later admitted that he simply intended to repeal Waugh v. Carver as the LAS had proposed.Footnote 163 Lowe explained the bills were a package aimed at balancing the availability of business organizations and the competition among them.Footnote 164
Both Goderich and Collier from the LAS rose to speak in praise of the measures, explaining that “the Bill now introduced would put all companies on the same footing” by enabling individuals to associate freely.Footnote 165 The society struck two committees to report on the legislation and specifically to revisit whether either should contain registration requirements.Footnote 166 Throughout the society was in communication with Lowe and Stanley at multiple interviews for which the two officials “expressed in the most handsome manner their thanks to the Society.”Footnote 167 The society managed to obtain alterations in the joint-stock bill, although it was unable to lower the number of minimum shareholders.Footnote 168 While the society came to accept the registration of corporations in order to demonstrate their capacity, they firmly rejected publicity requirements for partnerships as cumbersome. The society had also resolved to amend by the bill by placing investor loans behind those of other creditors so that registration was no longer thought necessary.Footnote 169
This had fatal consequences for the partnership bill, which had been withdrawn due to an error in drafting.Footnote 170 A revised bill, however, was re-introduced, and E. H. Crauford (LAS) successfully introduced the society’s resolutions on the second reading of the bill to place the investor behind the other creditors.Footnote 171 On the third reading, however, the bill was further amended with publicity and registration requirements so that the specific amount for which the investor would be liable might be known.Footnote 172 After the bill was amended Lowe withdrew it. Demands for registration would be the cause of subsequent failures of partnership reform until 1865, when Waugh v. Carver was finally rejected. The Partnership Amendment Act (1865) lacked registration conditions and placed the investor behind other creditors—as the LAS had sought.Footnote 173
The joint-stock bill, however, moved quickly to its third reading and then to the Lords. Lord Overstone and Lord Monteagle continued their protests. Overstone presented petitions from the Chambers of Commerce of Manchester and Glasgow, declaring that the measure “must tend to call into existence every species of knavery and trickery” and observed that the failure of the partnership bill created a “great artificial inducement to the transfer of concerns now carried on as private concerns to Joint Stock Companies.”Footnote 174 This opposition, met by Lord Derby and others who claimed that these critics spoke for narrow, elite interests, was to no avail. Royal assent was given to the Joint Stock Companies bill on July 14, 1856. Reformers may once again have accepted that the joint-stock bill’s minimal restrictions on incorporation had addressed many of their demands for working-class enterprise.Footnote 175 The LAS report on the joint-stock bill had observed that “a company of seven would differ little from an ordinary partnership” and had urged alterations to improve the management of these smaller associations.Footnote 176 As subsequent history demonstrated, even sole traders could now gain the protection of the statute if they could find seven “shareholders.”Footnote 177 This strategy eventually came to prominence in the leading case of Saloman v. Saloman (1896), in which all the shares of Aron Saloman’s incorporated business—in reality a sole proprietorship—were held by himself, his wife, and his children.
Conclusion
The LAS was the key facilitator and clearinghouse of ideas in the campaign for mid-Victorian company law reform. The campaign was broad: Members of the society worked to extend legal protection to cooperatives, expand access to incorporation, and provide limited liability to investors in partnerships. The path to these reforms was often unforeseen, shifting and opportunistic. Members did not begin in the 1840s with a program that they realized in all aspects. At points imperfect solutions were accepted: The creation in 1856 of one of the most permissive joint-stock regimes in Europe was shaped by and temporarily substituted for partnership reform. As a pressure group, the LAS demonstrates both the complexity of the internal politics of these associations, the contingent character of their achievements, and the sophistication of their wider interface with the legislature and allied associations like the WMA.
Through debate, analysis, and discussion, individuals such as Fane, Field, Neale, Lord Goderich, Collier, and many others pursued their ideas. Though they often differed in details, they were united by a single logic: fair competition. Fair competition meant removing barriers for entrepreneurial and investor participation in the market by widening organizational choice. This logic supplied two important resources for reformers. First, fair competition identified a mischief that needed a solution and shaped a positive program of reform. The mischief could be stated in emotive terms: a rigged system in which established capitalists protected their economic position by removing opportunities from the working and middle classes. The positive program for reform was a broad transformation of the law governing business organization. By “marrying capital to ingenuity” and opening access to novel or hitherto privileged organizational forms, the legislature expanded opportunities for working-class entrepreneurs to mobilize capital among themselves and attract middle-class investors who were protected against unlimited liability.Footnote 178 Reformers were mindful throughout of the condition of the working classes and responded to their complaints about the use of legislative machinery to protect class power.Footnote 179 But company law reform was not simply reactive. Reformers imagined a new world in which “enterprising men of character, without capital” would be unleashed to prosper and “bring hope, the value of character, and a chance of advancement.”Footnote 180 The pursuit of fair competition was a moral good demanded by the historical progress of the liberal market.
Whether company law reform, which continued into the 1860s, met these hopes is an open question calling for further research on its social implications. The measure was popular: 2,265 companies registered under the 1856 act and 4,021 under the act of 1862.Footnote 181 Shareholding may have become more accessible: Over the next two decades the average nominal value of securities issued by new corporations was £10 or less, and by the 1870s, £1 shares were more common.Footnote 182 While most shareholders were local, as reformers had hoped, their social composition is difficult to determine. Cottrell’s shareholder data categorize 30 percent as “unoccupied” and 8 percent as unknown. But by 1860 at least 4.62 percent of shareholders of new concerns were industrial skilled and semi-skilled workers, partially reflecting the establishment of a large number of worker-owned cotton-spinning companies.Footnote 183 This suggests that the goals of reformers were at least partially realized.
Methodologically this argument applies insights from management and organization studies to reconstruct how company law shifted in response to the deployment of sociocultural ideas. The institutional logics approach emphasizes ideational patterns as resources for those working to transform their organizational ecosystem. In comparison to functionalist and neo-institutionalist approaches, this perspective stresses individual agency and noneconomic factors in the development of the business environment.Footnote 184 Fair competition provided a unifying logic for reformers who used the same pattern of argumentation, but stated within their ideological idioms to advocate for their “institutional work” in creating new organizational forms.Footnote 185 Fair competition also demonstrated the generative capacity of institutional logics, producing diverse organizational innovations that both complemented and competed with each other. The study of mid-Victorian company law reform therefore illuminates the process by which institutional change—some of which appears even in hindsight quite radical—was legitimized by appeal to moral ideas and shifting social logics. Institutional logics may therefore also be useful to interpret the emergence of other organizational forms, such as benefit corporations, within their wider socioethical contexts.
Fair competition was a source of critique because it also had a legitimating function. Historians of Britain’s nineteenth century have considered market morality from many perspectives. Some have argued for the rise of a mechanist, amoral market economy captured in contemporary demands for laissez-faire. Others have described the survival of traditional forms of economic morality or the harmonization of political economy with other value systems such as religion.Footnote 186 Debates over fair competition also demonstrated how the “market construct” of liberal capitalism could generate its own moral logic and affective charge.Footnote 187 Fair competition legitimized liberal markets as spaces of opportunity and choice for individuals, each self-interested and unequal in resources to be sure, but nonetheless playing by the same rules of the game to seek their own rewards. The research of Daniel Kahneman and Richard Thaler has recently affirmed the force of such appeals by demonstrating the influence of perceptions of fairness on economic decision making in preference to pure utility maximization.Footnote 188 Yet the promise of such fairness was not realized simply by the removal of impediments to the functioning of the market, despite the claims of some contemporaries. As the debate over the midcentury changes in company law reveals, reformers drew attention to the role of the state in shaping markets as moral spaces. The state’s determining of the rules of the game through organizational choice directly affected economic possibilities that might bring about greater prosperity and wealth. The effects may have been quite different from the rhetoric or hopes.Footnote 189 But such state intervention, especially in concert with pressure groups like the LAS, anticipated the technocratic interventionism of the Gladstonian period.Footnote 190 Fairness and market morality were therefore not simply implicit in the liberal economy or its mechanistic processes, but their realization was the consequence of the very human choices of legislators.
