Walter Bagehot attacked unlimited liability on the grounds that its financial benefits were illusory, as most shareholders simply did not have deep enough pockets to make good prospective losses (Bagehot (1862)). International practices were also shifting. Limited liability had been introduced in parts of continental Europe from the 17th century onwards. It had also begun its journey across the Atlantic, with Connecticut and Massachusetts adopting it from 1817 (Haldane (2011)). In 1854, a Mercantile Law Commission in the UK reported on its review into limited liability. Its verdict was clear: “although the details of our mercantile laws may require correction…it would be unwise to interfere with principles which…have proved beneficial to the general industry of the country” (Johnson (2013)). In short, the costs of limiting liability outweighed its benefits. It was to no avail. A well-connected, and newly wealthy, middle class was eager to protect its riches when owning and investing in business (Ireland (2010)). And an eager-to-please political class was keen to expand business to stimulate economic activity (Blumberg (1986)). Parliament passed the Limited Liability Act in 1855. With limited liability, incentives to avoid insolvency were no longer so sharp. As share ownership widened, directors and shareholders became distinct entities. In the eyes of the law, a share was no longer an equitable interest in a company’s assets (Ireland (2010)). Instead it was a residual claim on its future profits. A Rubicon had been crossed. Britain’s early banks Interestingly, banks followed a somewhat more circuitous route, albeit to the same end-point.

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