ART. II.-On the Law of Partnership en Commandite.

In the year 1782 the Parliament of Ireland passed an Act, still unrepealed, (21 & 22 Geo. III., c. 46,) enabling partnerships to be formed on the principles of limited responsibility, like the Continental partnerships en commandite. This statute, the provisions of which we shall hereafter consider, has never practically come into operation, one or two companies only having been formed under it. Of late years the question of the adoption in Great Britain and Ireland of partnerships of that description has been very much discussed. It was made the subject of an able report by Mr. Bellenden Ker in 1837, in which he strongly advocated the commandite system. It was fully considered by the parliamentary committee on joint stock companies which sat in 1844. The Society in London for the Amendment of the Law have also published a report, concurring in the views of Mr. Bellenden Ker; and the same topic forms the basis of a volume, published in 1848 anonymously, but evidently written by a man of great mercantile experience, in which the writer shows with much clearness, and in great detail, the extreme importance of such a system for giving a healthy stimulus to commerce and manufactures, and checking the ruinous tendency to over-speculation, and consequent panic, now become periodical in England.* He also dwells upon its greater, and almost vital, importance to a country circumstanced like Ireland, where capital is comparatively small and scattered, and mercantile and manufacturing enterprise still in its infancy. As we are persuaded that nothing is more essential to the rising hopes of industry in Ireland than this measure, it is our intention briefly to lay before our readers the defects in the existing law of partnership which it would supply, and the practical benefits which have resulted from its working on the Continent, and in the United States.

An ordinary partnership (as distinguished from an incorporated or chartered joint stock company) may be either general, extending to every trade or business in which the partners engage, or it may be confined to some special business or enterprise. Again, the interests of the partners in the profits may be either equal, or vary in any ratio whatsoever. But there is one consequence common to every partnership, general or special, equal or unequal-namely, that every partner in it, no matter how minute his interest, is liable for the debts and engagements of the company to his very last farthing.

Every person then who embarks in a joint mercantile or industrial undertaking, no matter to how small an extent, and no matter how he may wish to limit his responsibility, in reality imperils his whole fortune, and runs the risk of ruin in case of the insolvency of the concerns.

The exceptions to this rule are companies incorporated by Act of Parliament, and joint stock companies, to which letters patent have been

Partnership en commandite, or Partnership with Limited Liabilities, according to the commercial practice of the Continent of Europe, and the United States of America. London: Effingham Wilson. 1848.

granted by the Crown, under the Joint Stock Companies' Act, 1 Vict., c. 73. In these cases, as is very well understood, the shareholders are liable only for "calls" until the amount which they engaged to subscribe towards the undertaking is paid up, and no further. But in every other case, whether the partners be two or two thousand, each of them is liable to the creditors of the company-to use the words of Lord Cottenham"to his last shilling, and his last acre."

If, therefore, a person be desirous of embarking a portion of his savings in some enterprise of commerce, or manufactures, or agriculture, of which he has good hopes, upon the condition of having his proportionate share of the profits if successful, and of losing his venture, and no more, in case of failure, the existing law (apart from the unused statute we have referred to) affords him no means of doing so. His right to a participation in the profits constitutes him a partner, and if he enters into it at all, he must do so on the terms of staking all he is worth in the world upon the result.

It is plain how fatally such a law must operate upon the chances of attracting capital to really hopeful industrial undertakings. It is never by means of such unwieldly machinery as joint stock companies that the resources of a country can be profitably turned to account. The individual eye that sees what can be done, the individual energy and ambition which aspires to do it, and to achieve fortune in the doing, are all in all to such enterprises. But neither talent, nor energy, nor experience, is sufficient, without the command of adequate capital, which, in case of the actual promoters of the undertaking not being possessed of it, can only be obtained either by the almost impracticable method of loan, or by inducing those who have money to invest, to risk all their worldly substance by taking a share in the profits. If, therefore, a plan, the best conceived and matured, for growing flax or making linen in the South, or for starting a manufacture of woollens, or cotton, or earthenware, or for extensive farming or drainage, or for a deep sea fishery, or for working mines, or any other branch of industry whatsoever, and the projectors of it, with facts and figures in their hands, apply not to London millionaires or jobbers, but to local men at home, whom they hope to interest in their project, and say to each of them-"We know you have money looking out for investment: embark in our undertaking, and we will promise you a return of seven, or eight, or ten per cent. Here are our data, examine them for yourself." After examination and reflection, the person so addressed says “I think highly of your project, so highly that I could be well content to venture £500 or £1,000 with you; but your plan, like all human things, is liable to accidents, and if you fail I am made liable for your debts, and ruined. If you could in any way guarantee to me that my £500 or £1,000 should be the limit of my losses, well and good, I am willing to risk it." Now, this is precisely what can not be done under the existing law of partnership here, and what the commandite system gives the means of effecting on the Continent, and America.

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A partnership en commandite" is one in which, in addition to the managing partners, who incur unlimited responsibility, there are sub

scribers, or shareholders, who are responsible only to the amount of their subscriptions, and no further.* It is an essential principle in the system, according to the French law, that the commanditaires, or passive shareholders, should take no part whatever in the management of the concern, and an express stipulation to that effect must be contained in the deed of partnership.

By the French law, when persons wish to enter upon a partnership of this nature, it is necessary for them to register publicly an extract, or memorial, of the partnership deed, stating the names and addresses of the active or managing partners, the amount of capital subscribed, and the dates of the commencement and termination of the partnership. It must further state, that there are in addition "commanditaires," or shareholders, specifying their number; but the French law does not impose the necessity of stating the names of the commanditaires, on the ground that it is not to the individuals personally, but to the funds of the company, that credit is given. Any false representations as to the amount supplied is considered as swindling, and punished accordingly.

The terms of the French code defining the nature and consequences of partnership 66 en commandite" are as follows:

"Partnership en commandite is contracted between one or more responsible partners, and one or more partners, who merely advance funds, and who are named commanditaires, or partners en commandite. It is managed under a partnership name, which must of necessity be that of one or more of the public and responsible partners. When there are several responsible partners, whether the business is conducted by them jointly, or by one or more, on behalf of all, the partnership is at once a general partnership with respect to them, and a partnership en commandite with respect to the mere subscribers of funds. The name of a commanditaire partner cannot form part of the style of the firm. The commanditaire partner is only answerable for the losses of the partnership to the extent of the funds which he put, or become bound to put, into the concern. The commanditaire partner cannot perform any act of management, nor be employed in the affairs of the partnership, even by power of attorney. In case of violation of the preceding provision the commanditaire partner becomes liable in solido with the general partners for the debts and engagements of the partnership."—Code of Commerce, sec. 23-28.

It has been made a matter of considerable discussion in France whether the liability of the commanditaire partner for the funds which he has “put, or become bound to put," into the concern extends to the profits which he has received, as well as the capital originally subscribed. It seems, however, to be now settled, that the liability is limited by the original subscription, and that he is not bound, in any case, to refund profits.

The provision of the code precluding the commanditaire from taking any part in the affairs of the firm has been also the subject matter of much controversy. For example, it has been a mooted question whether a commanditaire can be employed as clerk or servant to the firm. This question

* The word commandite comes from commendare, which in low Latin means to entrust hence, benefices held in commendam. The application of it in the present instance arises from the trust which the subscribers, or non-active partners, who are called commanditaires, repose in the active partners, who are called commandités.

↑ Société en nom collectif.

also appears to be now set at rest, and it is held that a commanditaire can act in such capacity, without forfeiting his privilege of limited responsibility.

Accordingly, the French law, so interpreted, provides a means of giving to workmen and employès a substantial interest in the success of the business, which under our law is entirely unattainable. The profoundest thinkers on the subject of the relations between masters and workmen have long felt that the root of the evils to which these relations are for ever giving birth, consists in the absence of any unity of interest between them, or rather in the entire diversity of interest which must exist, where it is the object of the employer to get from his men the greatest possible amount of work, at the least possible rate of wages. In what way to

counteract the perpetual clashing of the selfish instincts of masters and men, is the great problem proposed to all countries in which manufacturing industry takes root—a problem the true solution of which is yet, we fear, far off. We are far from saying that the principle of partnership en commandite affords of itself an entire remedy; but it gives an opening, and a considerable one, in the right direction.

M. Leclaire, a house-painter, in Paris, about twelve or thirteen years ago, conceived the idea of associating his workmen to himself in the profits of his business, as partners en commandite. In a pamphlet published by him, he speaks in the very highest terms of the success of his plan. It renders the workmen not only more diligent, careful, and exact, but by increasing their self-respect in every way raises their moral natures. Other establishments in Paris have followed in the wake of M. Leclaire, and with the same results.

This species of partnership is established not only in France, but in all the Italian States, in Spain and Portugal, in Belgium and Holland, and in all, or nearly all, of the States of Germany. To its beneficial effects most valuable testimony has been given before the Parliamentary Committee on Savings, by Mr. Thomas Wilson, a man of great experience in Continental industrial undertakings, who, to use his own words, "has, since the year 1809, been concerned in almost everything that has been going on upon the Continent of Europe, where there has been a shilling to be gained: in all kinds of contracts of industry, speculations in the funds, in dyking rivers, and everything where anything could be gained."

His evidence is to the following effect:

That most of these operations have been carried on under societies, and by limited liabilities en commandite.

That he has tested the beneficial working of the system of limited responsibility in the large transactions of which he had experience in Holland: that it tends to bring persons of prudence and caution to take part in enterprises of this nature, which they would not do if responsibility were unlimited.

That, under the law of limited liability, enterprises are carried out successfully by circumspect men, and to the great advantage of the community.

That such enterprises so conducted, and carried out, afford good investments for the savings of the humble and middle classes.

That such societies in Holland are numerous, and have carried out very extensive works in the reclaiming of land from seas and rivers. That in his own time there has been gained from the Scheldt two or three hundred thousand acres under the working of a law of limited responsibility, these works being undertaken by capitalists, along with the local people, whose local knowledge, as well as their individual industry, is of immense importance, and whose interest is bound up with the success of the work, by their having shares under the commandite system; and that this mode of investment is popular with the humble and middle classes in Holland, whose people are remarkable, as well for their industry, as for their care and caution, in the undertakings they enter into.

That the use made of the system is by no means, however, confined to these classes, all ranks taking part in industrial undertakings as investments for money, and the King of Holland himself being an extensive commanditaire.

That he has found it work no less successfully in Belgium than in Holland, most of the collieries in Belgium having been worked en commandite; and that there also it has been found to induce persons of cautious, circumspect, and careful habits, to take shares in partnerships, which they would be prevented from doing if their whole fortune was liable.*

But it is not alone on the Continent of Europe that this system has been worked with such beneficial results. It has been adopted into the codes of nearly all the American States. By the code of New York, it is provided, that

"Limited partnerships for the transaction of any mercantile, mechanical, or manufacturing business, within this State, may be formed of two or more persons, upon the terms, with the rights and powers, and subject to the conditions and liabilities herein prescribed; but the provisions of this title shall not be construed to authorize any such partnership for the purpose of banking or making insurance.

"Such partnerships may consist of one or more persons, who shall be called general partners, and who shall be jointly and severally responsible as general partners now are by law, and of one or more persons, who shall contribute in actual cash payments a specific sum as capital to the common stock, who shall be called special partners, and who shall not be liable for the debts of the partnership beyond the fund so contributed by him or them to the capital.

"The general partners only shall be authorized to transact business and sign for the partnership, and to bind the same."

The code then proceeds to set forth special provisions for the regulation of such partnerships, in the main agreeing with, but in some respects differing, and we think unfavourably differing, from the French law.

We purpose on another occasion to consider those provisions more fully, as well as those of the abortive Irish statute, showing what alterations in the latter would permit the easy working of the system amongst us, and to deal with the objections which have been made to the commandite system on the grounds of supposed injustice to creditors, and alleged tendency to facilitate fraud.

*See evidence of Mr. Wilson before the Committee on Savings.-Parliamentary Paper for the Year 1850, vol. 19, p. 37.