Edward William Donoghue Manson

“ The debenture-holders or the debenture-stockholders may take the earnings of the company’s undertaking by obtaining the appointment of a receiver, but that is all they can do. They cannot sell the undertaking or disorganize it by levying execution, so long as the company is a going concern; but this protecting principle of public policy will not be a bar to a debenture-holder, in his character of creditor, presenting a petition to wind up the company, if it is no longer able to fulfil its statutory objects. ”

“ The authority and powers of directors are prima facie those necessary for carrying on the ordinary business of the company, but it is usual to define the more important of such powers in the articles of association. For instance, it is commonly prescribed how and when the directors may make calls, to what amount they may borrow, how they may invest the funds of the company, in what circumstances they may forfeit shares, or veto transfers, in what manner they shall conduct their proceedings, and what shall constitute a quorum of the board. ”

“ A building society, on the other hand, has no inherent power of borrowing (though a limited statutory power was conferred on such societies by the Building Societies Act 1874) ; nor has a society formed not for gain but to promote art, science, religion, charity or any other useful object. Public companies formed to carry out some undertaking of public utility, such as docks, water works, or gas works, and governed by the Companies Clauses Acts, have only limited powers of borrowing. ”

“ Another precaution unknown to British practice is that assets, not in money, brought into a company are subject to verification of value by a general meeting. The minimum nominal value of shares, where the company’s capital is less than 200,000 fcs., is 25 fcs.; where the capital is more than 200,000 fcs., 100 fcs. The société is governed by articles which appoint the directors, and there is one general meeting held every year. A société anonyme may, since 1902, issue preference shares. The doctrine that a corporation never dies has no place in French law. A société anonyme may come to an end. ”

“ A director, on the same principle, must not delegate his duties to others unless expressly authorized to do so, as where the company’s articles empower the directors to appoint a committee. Directors may, it is true, employ skilled persons, such as engineers, valuers or accountants, to assist them, but they must still exercise their judgment as business men on the materials before them. ”

“ It is a not uncommon practice for a solvent company to pass a resolution to wind up voluntarily for the purpose of reconstructing. The effect of this is to accelerate payment of the security, and the debenture-holders have to accept their principal and interest only, parting with a good security and perhaps a premium which would have accrued to them in a year or two. The company is thus enabled by its own act to redeem the reluctant debenture-holder on terms most advantageous to itself. ”

“ Shares are of various kinds—ordinary, preference, deferred, founders’ and management. Into what classes of shares the original capital of the company shall be divided, what shall be the amount of each class, and their respective rights, privileges and priorities, are matters for the consideration of the promoters of the company, and must depend on its special circumstances and requirements. ”

“ A promoter may sell his property to the company, but he must first see that the company is furnished with an independent board of directors to protect its interests and he must make full and fair disclosure of his interest in order that the company may determine whether it will or will not authorize its trustee or agent (for such the promoter in equity is) to make a profit out of the sale. It is not a sufficient disclosure in such a case for the promoter merely to refer in the prospectus to a contract which, if read by the shareholders, would inform them of his interest. ”

“ Founders' shares originated with private companies, being a convenient means of securing to the partners in the vendor firm, on conversion, the control of the business as well as the lion’s share of the profits. ”

“ Then in the matter of honesty, a director must not accept a present in cash or shares or in any other form whatever from the company’s vendor, because such a present is neither more nor less than a bribe to betray the interests of the company, nor must he make any profit in the matter of his agency without the knowledge and consent of his principal, the company. ”

“ The fact that a company is formed by one man, with the aid of six dummy subscribers, is not in itself (as was at one time supposed) a fraud on the policy of the Companies Act, but it is occasionally used for the purpose of committing a fraud, as where an insolvent trader turns himself into a limited company in order to evade bankruptcy; and it is to an abuse of this kind that the term “one-man company” owes its opprobrious signification.
Companies Limited by Guarantee.—The second class of limited companies are those limited by guarantee, as distinguished from those limited by shares. ”

“ The Companies Act 1907 (s. 39) gives a company a further power by special resolution, confirmed by an order of the court, to reorganize its capital, whether by the consolidation of shares of different classes or by the division of its shares into shares of different classes—but no preference or special privilege attached to any class of shares is to be interfered with except by a resolution passed by a majority of shareholders of that class representing three-fourths of the capital of that class. A limited company cannot reduce its capital without the sanction of the court. ”

“ Directors other than the first are elected at the annual general meeting, a certain proportion of the acting directors—usually one-third—retiring under the articles by rotation each year, and their places being filled up by election. A share qualification is nearly always required, on the well-recognized principle that a substantial stake in the undertaking is the best guarantee of fidelity to the company’s interests. A director once appointed cannot be removed during his term of office by the shareholders, unless there is a special provision for that purpose in the articles of association ”

“ The right of a preference shareholder is commonly confined to a preferential dividend and this dividend is prima facie cumulative, that is to say if the profits of the particular year are insufficient to pay it the deficiency must be made good out of the profits of subsequent years: but it is very common to give preference shareholders priority also as regards capital in the winding-up. ”

“ The Directors’ Liability Act enacted in substance that when once a prospectus is proved to contain a material statement of fact which is untrue, the persons responsible for the prospectus are to be liable to pay compensation to any one who has subscribed on the faith of the prospectus, unless they can prove that they had reasonable ground to believe, and did in fact believe, the statement to be true. ”

“ A sinking fund is a convenient means frequently resorted to for redemption of a debenture debt, and is especially suitable where the security is of a wasting character, leaseholds, mining property or a patent. Such a fund is formed by the company setting apart a certain sum each year out of the profits of the company after payment of interest on the debentures. ”

“ It is not too much, indeed, to say that the fastening of an onerous or improvident contract on a company at its start, by interested promoters acting in collusion with the directors, has been the principal cause of the scandals associated with company promotion. ”

“ They have to carry on the company’s business, to extend and consolidate it, and to do this they must have a free hand and a large discretion to deal with the exigencies of the commercial situation. This large discretion the law allows them so long as they keep within the limits set by the company’s memorandum and articles. They are not to be held liable for mere errors of judgment, still less for being defrauded. ”

“ An implied power of borrowing, even when it attaches, is too inconvenient to be relied on in practice, and an express power is always now inserted in a joint stock company’s memorandum of association. ”

“ France.—There are two kinds of limited liability companies in France—the société en commandite and the société anonyme. The société en commandite corresponds in some respects to the British private company or limited partnership, but with this difference, that in the société en commandite the managing partner is under unlimited liability of creditors; the sleeping partner’s liability is limited to the amount of his capital. The French equivalent of the English ordinary joint stock company is the société anonyme. ”

“ A private company does not appeal to the public to subscribe its capital, but in the main features of its constitution a private company differs little from a public one. It is only in one or two particulars that special provisions are requisite. It is generally desired for instance: (1) to keep all the shares among the members—the partners or the family—and not to let them get into the hands of the public ”

“ Upon their uprightness, vigilance and sound judgment depends the welfare of the greatest part of the trade of the country concerned. It is not to be wondered at that in view of this influence and independence of action the law courts have held directors to a strict standard of duty, and that the parliament of the United Kingdom has singled out directors from other agents for special legislation in the Directors Liability Act 1890, the Larceny Act 1861, the Companies Act 1867 and the Winding-up Act 1890. ”

“ The debenture-holders give the directors an implied licence to deal with and dispose of the property comprised in the security until the happening of any of the events upon which the debenture-holders’ money becomes under the debenture conditions immediately repayable. Pending this the charge is dormant. The licence extends, however, only to dealings in the ordinary course of business. Payment by a company of its just debts is always in the ordinary course of business, but satisfaction by execution levied in invitum is not. ”

“ The acts regulating business corporations generally provide that the persons proposing to form a corporation shall sign and acknowledge an instrument called the articles of association, setting forth the name of the corporation, the object for which it is to be formed, the principal place of business, the amount of its capital stock, and the number of shares into which it is to be divided, and the duration of its corporate existence. ”

“ Stockholders remain liable until their subscriptions are fully paid. Nothing but money is considered payment of capital stock except where property is purchased. Directors must usually be stockholders.
The right of a state to forfeit a corporation’s charter for misuser or non-user of its franchises is an implied term of the grant of incorporation. Corporations are liable for every wrong they commit, and in such cases cannot set up by way of protection the doctrine of ultra vires. ”

“ They have the power of defining how and when and in what shape and under what supervision it shall start into existence and begin to act as a trading corporation.” Such a control over the destinies of the company involves correlative obligations towards it, and one of these obligations is that the promoter must not take advantage of the company’s helplessness. ”

“ Foreign companies may found an affiliated company or have a branch establishment in Italy, provided they publish their memorandum and articles and the names of their directors. Where no convention exists the status of an immigrant corporation depends upon international comity, which allows foreign corporations, as it does foreign persons, to sue, to make contracts and hold real estate, in the same way as domestic corporations or citizens; provided the stranger corporation does not offend against the policy of the state in which it seeks to trade. ”

“ When a company is promoted for acquiring property—to work a mine or patent, for instance, or carry on a going business—the usual course is for the promoter to frame a draft agreement for the sale of the property to the company or to a trustee on its behalf. The memorandum and articles of the intended company are then prepared, and an article is inserted authorizing or requiring the directors to adopt the draft agreement for sale. ”

“ These conditions are mainly directed to securing that the immigrant corporation shall make known its constitution and shall be amenable to the jurisdiction of the courts of the country where it trades. Thus, by the law of Western Australia—to take a typical instance,—a foreign company is not to commence or carry on business until it empowers some person to act as its attorney to sue and be sued and has an office or place of business within the state, to be approved of by the registrar, where all legal proceedings may be served. ”