Edward William Donoghue Manson

“ 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. ”

“ 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 ”

“ 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. ”

“ 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. ”

“ For issuing preference shares the question for the directors is, what must be offered to attract investors. Preference shareholders are given by the Companies Act 1907, s. 23; Companies (Consolidation) Act 1908, s. 114, the right to inspect balance sheets. Founders’ shares—which originated with private companies—are shares which usually take the whole or half the profits after payment of a dividend of 7 or 10% to the ordinary shareholders. They are much less in favour than they used to be.
The machinery of company formation is generally set in motion by a person known as a promoter. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ Though every share carries with it the liability to pay up the full amount in cash or its equivalent, the liability is only to pay when and if the directors call for it to be paid up. A call must fix the time and place for payment, otherwise it is bad.
When a person takes shares from a company on the faith of a prospectus containing any false or fraudulent representations of fact material to the contract, he is entitled to rescind the contract. The company cannot keep a contract obtained by the misrepresentation or fraud of itsRescission of agreement. ”

“ 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. ”

“ The principle of limited liability having been once adopted by the legislature, justice required not only Register of members. that such limitation of liability should be brought home by every possible means to persons dealing with the company, but also that such persons should know as far as possible what was the limited capital which was the sole fund available to satisfy their claims—what amount had been called up, what remained uncalled, who were the persons to pay, and in what amounts. ”

“ 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. ”

“ A company can only pay dividends out of profits—which have been defined as the “earnings of a concern after deducting the expenses of earning them.” To pay dividends out of capital is not only ultra vires but illegal, as constitutingDividends. a return of capital to shareholders. Before paying dividends, directors must take reasonable care to secure the preparation of proper balance-sheets and estimates, and must exercise their judgment as business men on the balance-sheets and estimates submitted to them. ”

“ Besides trading companies there is another large class, exceeding in their number even trading companies, which for shortness may be called public companies, that is to say, companies constituted by special act of parliament for the purpose of constructing and carrying on undertakings of public utility, such as railways, canals, harbours, docks, waterworks, gasworks, bridges, ferries, tramways, drainage, fisheries or hospitals. ”

“ A contract to take shares is like any other contract. It is constituted by offer, acceptance and communication of the acceptance to the offerer. The offer in the case of shares is usually in the form of an application in Agreement for shares. writing to the company, made in response to a prospectus, requesting the company to allot the applicant a certain number of shares in the undertaking on the terms of the prospectus, and agreeing to accept the shares, or any smaller number, which may be allotted to the applicant. ”

“ Notices convening a general meeting must inform the shareholders of the particular business to be transacted; otherwise any resolutions passed at the meeting will be invalidated. Voting is generally regulated by the articles. Sometimes a vote is given to a shareholder for every share held by him, but more often a scale is adopted; for instance, one vote is given for every share up to ten, with an additional vote for every five shares beyond the first ten shares up to one hundred, and an additional vote for every ten shares beyond the first hundred. ”

“ This nominal capital must be distinguished from the subscribed capital. Subscribed capitalCapital. is the aggregate amount agreed to be paid by those who have taken shares in the company. Under the Companies Act 1900, Companies Act 1908, s. 85, a “minimum subscription” may be fixed by the articles, and if it is the directors cannot go to allotment on less: if it is not, then the whole of the capital offered for subscription must be subscribed. A company may increase its capital, consolidate it, subdivide it into shares of smaller amount and convert paid-up shares into stock. ”

“ The Companies Act as consolidated in the act of 1908, and the regulations under them, treat the directors of a company as the persons in whom the management of the company’s affairs is vested. But they also contemplate the Meetings. ultimate controlling power as residing in the shareholders. A controlling power of this kind can only assert itself through general meetings ”

“ So in regard to the management it is common to provide that the owner or owners of the business shall be entitled to hold office as directors for a term of years or for life, provided he or they continue to hold a certain number of shares; or an owner is empowered to authorize his executors or trustees whilst holding a certain number of shares to appoint directors. ”

“ Canada.—The act governing joint stock companies in Canada is the Companies Act 1902, amended 1904. It empowers the secretary of state by letters patent to grant a charter to any number of persons not less than five for any objects other than railway or telegraph lines, banking or insurance. ”

“ The dividend, again, may be payable out of the year’s profits only, or it may be cumulative, that is, a deficiency in one year is to be made good out of the profits of subsequent years. Prima facie, a preferential dividend is cumulative. ”

“ The property of the company simply belongs to the company in certain fractional amounts. This makes it convenient for clubs, syndicates and other associations which do not require the interest of members to be expressed in terms of cash. ”

“ The legislature has allowed Payment for shares. such companies to trade with limited liability, but the price of the privilege is that the limited capital to which alone the creditors can look shall at least be a reality. It is therefore ultra vires for a limited company to issue its shares at a discount; but there was nothing in the Companies Act 1862 which required that the shares of a limited company, though they must be paid up in full, must be paid up in cash. ”

“ These articles are filed in the office of the secretary of state or in designated courts of record, and a certificate is then issued reciting that the provisions of the act have been complied with, and thereupon the incorporators are vested with corporate existence and the general powers incident thereto. This certificate is the charter of the corporation. The power to make bylaws is usually vested in the stockholders, but it may be conferred by the certificate on the directors. ”

“ Their paid-up capital amounts to the stupendous sum of £1,850,000,000 and, what is even more significant, as the 1st Viscount Goschen remarks in his Essays and Addresses, is that “the number of shareholders has grown in a much greater ratio than the colossal growth of the aggregate capital. ”

“ None of these companies needs authority from the government for its constitution; all that is needed is a written agreement brought before the public in the ways indicated in the code (Art. 90 et seq.) ”