CHAPTER X

COMPANIES1

Definition-Formation-Registration-Memorandum of Associa

tion-Articles of Association-Prospectus-Directors-Capital Shares-Liability of Shareholders-Meetings and Resolutions -Debentures-Winding-up-Railway and other Companies.

MR. READER having successfully negotiated with the persons required to join him in partnership, and having met with success, may, with his friends, think it advisable to put their firm on such a footing that their liability shall be limited and the scope of their business accurately defined. They may do this by complying with the Companies Acts, 1862-1900, and "floating" their concern as a limited liability company. They may float it without limiting liability, but such a course is seldom adopted.

Definition.-A company within the Acts mentioned, generally called a "joint stock company" is "an association of individuals carrying on a business for profit, possessing a common capital contributed in defined proportions by the individuals composing the association, such capital being divided into shares, of which every individual possesses one or more, and which are

1 Fuller details on this head can be obtained from "Secretarial Work and Company Law," by the Publishers.

transferable by the owner" (see "Assignment of Shares by a Partner").

This definition shows us that we are dealing not with a number of persons as in partnership, but with an "association" composed of individuals. It is this association which is a legal person and with which we deal. Each individual sinks his personality in that of the company, and his private estate is not liable for the debts of the company, although he is personally liable to the company or its liquidator to the extent of his shares or guarantee.

formed.

Formation.-Let us now see how a company can be We must have seven individuals at least, not necessarily business men nor adults, but, at any rate, they must be able to subscribe to the documents of association. Each of the seven members must have at least one share, then if two persons are in partnership with a capital, say, of £1000, they could float their company, having five friends or relatives to take up a share each, and the rest would be allotted between the partners. The advantage of this arrangement is that the partners are limited in liability. Such an arrangement is usually styled a private company. In such cases, unless it is otherwise agreed, the questions of assignment of shares and introduction of new members offer no difficulties as they do in partnership. Again, if a person who is a partner dies, the partnership is at law dissolved; but in the case of a company death will not dissolve the association, provided always seven members at least are on the books of the company. Failure to comply with this rule of maintaining the number of members at seven renders every member

personally liable, provided the business has been carried on for six months with the reduced membership and the member has had knowledge of the state of affairs.

Registration. The minimum of seven persons must subscribe to a document called the "Memorandum of Association," registering the same with the registrar of joint stock companies, according to the provisions of the Acts, 1862–1900.

The effect of registering, if proved by a certificate from the registrar of joint stock companies, is to make the parties so registered a body corporate, able to act as one body, and to show their combined will by use of a common seal. The ordinary joint stock company can now issue its prospectus and invite the public to subscribe to shares, whilst the private company already mentioned may commence business forthwith.

Before the registrar will register, the names of directors must be supplied together with a statement, in a form required by the Acts, declaring that the requirements of the Companies Acts have been complied with.

Memorandum of Association.-1. The Memorandum of Association must state exactly the name of the company followed by the word "limited," unless in case of a non-trading company, not existing for profit, the word "limited" is expressly allowed to be omitted. This name must appear on the seal of the company, and on all documents or papers issued by or for the company in its business, e.g. prospectus, advertisements, business forms, orders, invoices, bills of exchange, etc.

2. The situation of its registered office must be

stated in the memorandum. The name of the company is to be legibly printed or engraved outside the office, and the word "limited” must not be omitted.

3. The objects of the company must be explicitly set out, and the members of the company are bound by the statements there made. No change can be made in the memorandum without certain formalities. Previous to 1890, when the Companies (Memorandum of Association) Act was passed, a company had as a rule to be wound-up and reconstructed in order to change or enlarge the scope of its business; now, however, a company can, by virtue of this Act, alter the memorandum by special resolution to be confirmed by the Court; e.g. a company may enlarge its business or change the area of its operations, restrict its own rights, and even abandon them in this way (see Re Fraser, Ltd., 1903).

4. The memorandum must also state that the company is limited, or rather that the liability of members is limited to the amount of the shares held by them respectively.

5. The nominal capital must be stated, the number of shares into which it is divided and the amount of each share.

A declaration of agreement to take shares is made by seven subscribers. Usually each signs for one share in order to qualify. Each signature is, of course, attested.

Articles of Association.-Another document generally accompanies the memorandum, which is called the "Articles of Association." This document must be in existence in case of companies which have no limit of liability or companies limited by guarantee, but not

necessarily so in companies limited by shares, for the Act of 1862 provides in its first schedule a list of model articles, called Table A, which sets forth certain regulations applicable in such cases, so far as they can be made applicable.

For companies registered after October 1, 1906, a revised Table A has been issued for the use of companies registered after that date. Any company may avail itself of this table, either with or without modifications.

According to Lord Cairns, the memorandum is the charter of the company, the articles being a document defining the duties, rights, and powers of the governing body, the method of carrying out the objects of the company as set out in the memorandum, and the way in which these regulations of the company shall be altered or made. They may be altered or added to by a special resolution, always, of course, in conformity with the Acts and with the memorandum. A contract not to alter the articles would be void, as a company cannot contract out of its statutory right to alter.

Prospectus.-We have seen that a public company on registration may now issue a prospectus. What does this mean? A prospectus is a document put forward by the directors and others interested to invite and induce persons to take up shares in the company. It must state the names and addresses of vendors of property to the company, the price, the dates, the goods sold, and all parties to material contracts, together with a full account of the interest of every director in the promotion of the company. It must be signed and dated, and must be registered before it is issued.