The Limited Liability Act of 1855 was the first United Kingdom statute to allow companies to be registered with limited liability. The aim of the 1855 Act was to encourage investment in businesses by limiting the liability of investors. In law, registered companies have a separate legal personality from their shareholders. Since 1855, a shareholder's liability for a company's debts is limited to the amount of capital that he has invested.
Background to the Act
The Limited Liability Act of 1855 was passed during the United Kingdom's industrial revolution, chiefly to encourage investment. In 1844, the Joint Stock Companies Registration and Regulation Act established the framework for company law in the United Kingdom. It provided for registration of all companies with more than 25 members, or with freely transferable shares. The Joint Stock Companies Act also created the Registrar of Joint Stock Companies. All shareholders in a company, however, remained personally liable for the company's debts.
The Limited Liability Act 1855
In 1855, the U.K. Parliament decided that investors would be more likely to provide capital to small companies if their liability was limited. Therefore, after much debate, Parliament passed the Limited Liability Act of 1885. The Act did not receive overwhelming approval, and was described by some as the "Rogues' Charter." The Limited Liability Act was, by modern standards, a short piece of legislation. It introduced the concept of limited liability and required that companies include the term "limited" or "ltd" in their names. If a company had more than 25 shareholders and shares of a value of at least 4.54 Kilogram, it would be granted limited liability when it registered with the Registrar of Joint Stock Companies.
Exclusions from the Act
The main aim of the Limited Liability Act was to encourage investment in business enterprises. For this reason, it did not extend to insurance companies or banks. It also applied only to companies registered in England and Wales, and not to Scottish corporations.
Aftermath of the Act
The Limited Liability Act was repealed shortly after becoming law. Less than one year after it was passed, the U.K. Parliament decided to codify existing legislation by passing the Joint Stock Companies Act 1856. This Act applied to all legal systems in the United Kingdom, including Scotland. It provided for both company registration and limited liability and was the foundation for modern company law in the U.K. Today, the Companies Act of 2006 contains the legal provisions to regulate the formation and liability of companies in the United Kingdom.
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- The Galway Student Law Review: Limited Liability -- A Necessary Consequence of Incorporation?: Aidan Small: 1988
- The National Archives: Registration of Companies and Businesses
- "International Journal of Social Economics"; The Development of the Corporation in England, with Emphasis on Limited Liability; Max Gillman and Tim Eade; 1995
- Legislation: Companies Act 2006