Limited Liability, a peculiar responsibility for contracts, defined by statute. The instance of partnership is a common one in which parties by the relation itself assume a general liability for the acts and defaults of their associates when acting within the scope of the business; and this is irrespective of the several interests of the partners, and cannot be limited by the understanding between them. Nevertheless there is no reason in public policy why one partner should not be vested with exclusive authority to act for all, nor why others dealing with the partnership should not be permitted to stipulate to confine their negotiations to that partner. Indeed, public policy might often be subserved by that course, for men of large means might be willing to unite with others in important enterprises if their liability could be restricted to the consequences of contracts framed in every instance by themselves, when they would be unwilling to put their fortunes at stake upon the judgment, discretion, or integrity of others. Accordingly, it has been customary in very recent times to provide by statutes for the formation of partnerships with a limited liability on the part of some of the partners.
In order, however, that no injustice may be done to others in such cases, these statutes provide for the giving of public notice of the limited nature of the proposed responsibility, and establish other precautions to prevent the arrangement becoming a cloak for fraud. These limited partnerships have everywhere the same general features. There are general partners and special partners. They enter into a formal contract of partnership in writing. In giving public notice of the arrangement the names of all are given, and the amount of the capital put in by the special partner is named, and this capital, and this alone, is put at risk by him in the business. But this capital must be actually paid in, and any misstatement in this particular will make the special partner liable for all debts. The notice is required to be published in some form, and generally, also, to be recorded in some public office; and the general partner assumes the management of the business, which must not be interfered with by the other.
The contract specifies the term for which the partnership is to continue, and any failure to comply with the statute in any substantial particular (as, for instance, in publishing the usual notice in a newspaper, where that is required) would be held to leave the case without the statute, so that only a common law partnership would exist, with full liability on the part of all members. - Analogous to these are the cases of joint-stock companies. Where these companies are formed without reference to statutory provisions, they may perhaps confine the authority to act for them to their officers; but as such companies are partnerships, troublesome questions of fact would be apt to arise, whether in any case a party contracting with a private member who assumed to act for the company was fairly and fully notified that he had no authority so to do. Accordingly many statutes have been passed, particularly in Great Britain and in the Netherlands, for the regulation and control of joint-stock companies with limited liability. The provisions for this purpose are very minute and particular, but the leading idea is that they must apprise the public of the particular nature of their association, so that no one need be deceived.
The companies assume a joint name, after which, when used in their public notices and elsewhere, is added the word " limited," and their books are required to be open for public inspection. Observing the statutory precaution, the members are only liable for company debts to the extent of the amount invested therein, or to the extent specified in their articles. - The case of corporations with limited liability of members is quite different. In a partnership all members are presumptively liable for all the joint debts, but in case of a corporation all members are presumptively exempt from liability except to the extent of their investment. Where, therefore, members are liable further in consequence of statutes, the statutes have been passed for the purpose of extending individual liability, instead of restricting it as in case of partnerships and joint-stock companies. The policy of making stockholders liable further, in some cases, was recognized in this country early in the present century, and it has been acted upon in a constantly increasing number of cases ever since. In some cases stockholders in banks have been made liable generally for all the bills of the bank.
In other cases all stockholders are made liable for all of a certain class of debts; as, for instance, debts for personal labor performed for the corporation. In other cases they are made liable for all debts, though perhaps only to a certain extent; as, for instance, to the extent of twice the amount of stock held by them. There are constitutional provisions in several of the states on the subject, that of California making each stockholder liable for his proportion of all debts; but a more common provision makes him liable for the stock held and an equal sum in addition. Generally the corporation must be proceeded against first, and the resort to the stockholder is only after failure to collect from corporate property. Laws or constitutional provisions establishing this liability do not affect corporations previously chartered, except where a power of control had been reserved to the legislature in chartering them. This extension of liability of stockholders has not been adopted to any considerable extent abroad. - The method of limiting the liability of common carriers has been referred to under that title.
The responsibility of the husband for the debts and obligations of the wife is also considered under the title Husband and Wife. So far as the wife's debts at the time of the marriage are concerned, no contract or settlement between the parties can protect the husband against liability; though if she has an estate of her own, the proper contract may give him a remedy against it. But statutes, as was said under that title, have removed this liability altogether in some states. As to engagements by the wife after marriage which are to charge the husband, he may preclude them by giving notice in advance that he will not be bound by them; but to be sufficient in the case of one who has dealt with the wife before, as agent for the husband and with her assent or ratification, the notice must be brought home to him personally. And even such a notice would not be sufficient to protect the husband from liability for actual necessaries supplied to the wife where she was living and cohabiting with him, or living elsewhere with his consent and without means of her own, and was not provided for by him. - Corporations, especially those of a public-nature, are often limited by their charters in the amount of the debts they may incur; but when these are contracted in negotiable form, and are negotiated, they have been held to be enforceable though the limit was exceeded; the rule of the law merchant for the protection of bona tide holders, overriding the rule of statute law for the protection of the corporation. - For the limitation of suits to enforce liabilities, see Limitation, Statutes of.