The Limited Liability Act 1855 (18 & 19 Vict. c. 133) was an act of the Parliament of the United Kingdom that first expressly allowed limited liability for corporations that could be established by the general public in England and Wales as well as Ireland.[2] The Act did not apply to Scotland,[3] where the limited liability of shareholders for the debts company debts had been recognised since the mid-Eighteenth century with the decision in the case of Stevenson v McNair.[4] Although the validity of the decision in that case had come to be doubted by the mid-Nineteenth century,[5] the Joint Stock Companies Act 1856 – which applied across the UK – put the matter beyond doubt, settling that Scottish 'companies' could be possessed of both separate legal personality and limited liability.
Overview
Under the Act, shareholders were still liable directly to creditors, for the unpaid portion of their shares. The modern principle that shareholders are liable to the corporation was introduced by the Joint Stock Companies Act 1844.
The 1855 Act allowed limited liability to companies of more than 25 members (shareholders). Insurance companies were excluded from the act, though it was standard practice for insurance contracts to exclude action against individual members. Limited liability for insurance companies was allowed by the Companies Act 1862.
Debate
In the House of Lords, a considerable amount of opposition existed to the idea that companies should have the advantage of limited liability. Many peers objected to what appeared to them as the government rushing through the bill as if its urgency was connected to the effort in the Crimean War. Earl Grey was one of these. He said,[6]
It proposes to depart from the old-established maxim that all the partners are individually liable for the whole of the debts of the concern.
it appears to me that a time of war is the very time which you ought to free commerce from restrictions, and, therefore that the reason he mentioned is an especial reason for pressing on the Bill instead of retarding it.
Paterson, W (ed). "Limited Liability Act". The Practical Statutes of the Session 1855. John Crockford. Essex Street, Strand, London. Pages 556 to 570.
Harris, R. (2000). Industrialising English Law: Entrepreneurship and Business Organisation, 1720–1844. Cambridge, UK: Cambridge University Press. ISBN0-521-66275-3.
Mayson, S.W; et al. (2005). Mayson, French & Ryan on Company Law. London: Oxford University Press. ISBN0-19-928531-4.
Amsler, C.F.; et al. (1981). "Thoughts of some British economists on early limited liability and corporate legislation". History of Political Economy. 13 (4): 774–93. doi:10.1215/00182702-13-4-774.
^Kenneth G. C. Reid, 'Embalmed in Rettie: The City of Glasgow Bank and the Liability of Trustees' in Andrew Burrows, David Johnston and Reinhard Zimmermann (Eds.), [Judge and Jurist: Essays in Memory of Lord Rodger of Earlsferry], (Oxford University Press, 2013), at 492
