So that the proper stamp for a share warrant issued in respect of one 101. Form 204. share will be 3s.

By s. 127 of the Stamp Act, 1870, it is provided that: "If a share warrant is issued without being duly stamped, the company issuing the same, and also every person who, at the time when it is issued, is the managing director or secretary, or other principal officer of the company, shall forfeit the sum of 501."

It is not uncommon to annex to a share warrant a series of coupons numbered consecutively. When they are exhausted fresh coupons are issued. They require no stamp. Where such coupons are issued it is desirable in the conditions [supra, p. 203] to provide that the delivery of a coupon shall be a good discharge to the company for the corresponding dividend. Sometimes a note is added to the coupons stating that: "This coupon must be brought to the company's office upon the dividend being declared, in order that it may be examined and vouched."

Form 205. Coupon to share warrant.

On the

fresh coupons.

day of, and at the expiration of each succeeding Form 206. period of ten years, the bearer, upon presentation of the appropriate Voucher for voucher, will be entled to a fresh sheet of coupons and a new voucher. Where share warrants are likely to be dealt in abroad they are generally printed in two or more languages side by side.

I HEREBY CERTIFY that The under the Companies Acts, 1862 to 1883, and that this co is limtd.

Co, Limtd, is this day incorporated Form 206a.

Given under my hand this

day of

Section 18 of the Act of 1862 makes the registrar's certificate of the incorporation conclusive evidence that all the requisitions of the Act in respect of registration have been complied with. See supra, p. 64.

Certificate of incorporation.

I HEREBY CERTIFY that A. B. & Co., Limtd (which was constituted Form 207. by articles of association, dated 18th April, 1883), is this day incorpo- Certificate on rated under the Companies Acts, 1862 to 1880, and that this co is limtd. registration Given under my hand at London this 16th day of May, 1883.

See s. 192 of the Act as to conclusive character of certificates. When the deed is called a "deed of settlement," the certificate is framed accordingly.

under Part

VII.

PROSPECTUSES.

Prospectus.

How prepared and published.

Form.

INTRODUCTORY NOTES.

WHERE it is intended to appeal to the public for the capital to work a company, the usual course is to issue a prospectus inviting applications for shares. Formerly a prospectus was almost always issued before the formation of a company; but since the Act of 1862, which has rendered the formation of a company so inexpensive and simple a matter, it has become the general practice to issue the prospectus after the formation (i.e., the registration) of the company. And it is desirable to continue this practice, since it prevents many disputes and difficulties which used to arise under the old practice.

In most cases the prospectus is prepared by or under the direction of the promoters before the company is formed, and after its formation is submitted to the directors of the company, who pass a resolution approving of it, with or or without modification, and directing it to be issued. The mode in which the prospectus is brought to the notice of the public varies considerably. In some cases the parties rely almostentirely on the gratuitous circulation of printed copies of the prospectus, but generally the document, or an abridgment thereof, is advertised more or less extensively in the newspapers.

A prospectus is usually headed with the name of the company, and generally states the nominal capital, the number and description of the shares offered, the terms of issue, the names of the directors, bankers, solicitors, brokers, auditors, and secretary, or of some of them, the objects and prospects of the company, how applications for shares are to be made, what contracts have been made, and where copies of the prospectus and of the memorandum and articles of association and of the contracts can be seen.

Skill required The preparation of a prospectus requires both skill and judgment, and responsibility involved. and involves great responsibility; for not only does the success of the company's appeal to the public depend to a considerable extent on the attractiveness of the document, but, if it is improperly framed, the company, its directors and promoters, may be exposed to litigation and liabilities of the most harassing and serious character.

Practice.

As already mentioned, the prospectus is usually prepared by or under the direction of the promoters, and with the privity of the directors.

Very commonly legal advice is taken on the draft, for ignorance of

law or want of judgment on the part of those who issue a prospectus may lead to the most unfortunate and even ruinous consequences. As appears below, bona fides and honesty are not a sufficient protection. A person may be fully aware that he is bound to state all material facts; but from his position, perhaps blinded by his sanguine expectations, he may be unable to form an impartial judgment as to what facts are material. He may know well enough that he must abstain from misrepresentation; but be totally unable to see that an ingeniously-framed statement which he or some other person desires to insert is misleading. He may believe a statement to be true; but be forgetful or ignorant of the danger he incurs in stating as a fact that which he only knows by hearsay. He may think that as documents are offered for inspection, applicants will be fixed with knowledge of their contents, and may not notice in the prospectus that which renders the offer nugatory. He may imagine that this or that is only a small matter, and may be surprised a few months later to find that his want of judgment has led to his being made a defendant in seventy or eighty actions.

The memorandum and articles of association and any preliminary contracts are generally settled at the same time, for these documents are very commonly framed in contemplation of the prospectus, and with reference to what it is desired therein to say or not to say. The prospectus should not be finally settled until after the formation of the company.

A prospectus has in general to be considered in the interests

1. Of the applicants for shares ;

2. Of the company;

3. Of the directors;

4. Of the promoters;

5. Of the vendor ;

and in many cases the same hand has to settle the document with a

due regard to the interests of all these persons.

It may be convenient here to refer to these interests separately :

AS TO THE INTERESTS OF APPLICANTS FOR SHARES.

Interests to be considered.

In the interests of applicants for shares the prospectus should be so Interests of applicants. framed that persons taking shares upon the faith of it may not have any cause for complaint. Accordingly it should not contain any misrepresentation, and should disclose all material facts. As was said by Vice-Chancellor Kindersley, in the case of the New Brunswick and Canada Ry. Co. v. Muggeridge, 1 Dr. and Sm. 38-"Those who issue a prospectus holding out to the public the great advantages which will accrue to persons who will take shares in a proposed undertaking, and inviting them to take shares on the faith of the representations therein contained, are bound to state everything with strict and scrupulous accuracy, and not only to abstain from stating as fact that which is not so, but to omit no one fact within their knowledge the

Interests of company.

Repudiation of shares.

existence of which might in any degree affect the nature, or extent, or quality of the privileges and advantages which the prospectus holds out as inducements to take shares."

The rule laid down in this passage was termed a "golden legacy" by Page-Wood, V.-C., in Henderson v. Lacon, 5 Eq. 262, and it was cited with approbation in the case of the Central Ry. Co. of Venezeula v. Kisch, L. R. 2 H. L. 113. In this case Lord Chelmsford, L. C., in giving judgment, said: "In an advertisement of this description [i.e., a prospectus] some allowance must always be made for the sanguine expectations of the promoters of the adventure, and no prudent man will accept the prospects which are always held out by the originators of every new scheme, without considerable abatement. But although, in its introduction to the public, some high colouring, and even exaggeration, in the description of the advantages which are likely to be enjoyed by the subscribers to an undertaking may be expected, yet no mis-statement or concealment of any material facts or circumstances ought to be permitted. In my opinion, the public, who are invited by a prospectus to join in any new adventure, ought to have the same opportunity of judging of everything which has a material bearing on its true character, as the promoters themselves possess. It cannot be too frequently or too strongly impressed upon those who, having projected any undertaking, are desirous of obtaining the co-operation of persons who have no other information on the subject than that which they choose to convey, that the utmost candour and honesty ought to characterise their published statements." It should also be seen, in the interests of shareholders, that s. 38 of the Act of 1867 is complied with. See infra, p. 242 et seq.

AS TO THE INTERESTS OF THE COMPANY.

It is obviously for the interest of the company that its members should have no cause to complain that they have been entrapped into taking shares by an improperly framed prospectus, for such complaints are calculated seriously to damage the company's credit, and to cripple its operations.

But in the interest of the company the main point to be looked to is, that the members shall not be able to repudiate their shares. In this view the utmost care must be taken that the prospectus is free from misrepresentations, and that it discloses all material facts, for it is well settled that a person taking shares upon the faith of a prospectus which does not comply with these rules, is entitled, upon discovering the truth, to have the contract rescinded, and to recover any money paid to the company in respect of his shares.

The following are some of the cases in which relief has been given on the ground of misrepresentation. The Central Ry. Co. of Venezuela v Kisch, L. R. 2 H. L. 99, where the prospectus untruly stated (1) that the contract for the execution of the company's works had been entered

into with a responsible contractor, (2) untruly stated that the contract price was considerably within the available capital, (3) did not mention that the concession which the company was formed to carry out had been purchased from the original grantees at a cost of 50,0007., (4) held out the advantages of a guarantee as to interest on capital given by the contractor, but did not mention that it was limited to a certain amount; and upon the application of a person who had taken shares on the faith of the prospectus, the contract was rescinded. So in Ross v. Estates Investment Co., 3 Eq. 122, 3 Ch. 682, the prospectus untruly stated that "more than half the first issue of shares has been already subscribed for," and that "upwards of 70,000l. has already been expended on this estate by the vendor in buildings and improvements, in addition to the purchase money paid by him for the land." It was held that the plaintiff, who had taken shares on the faith of the prospectus, was entitled to have his contract set aside, and his deposit returned.

In another case the prospectus of a mining company stated that a particular mine, containing "several very valuable claims, some of which are in full operation, and make large daily returns," had been contracted to be purchased. The mine was, in fact, worthless, and there were no claims in operation. It was held that a person who had taken shares on the faith of the prospectus was entitled to relief. Smith's Case, 2 Ch. 604; L. R. 4 H. L. 64. See also Kent v. Freehold Land Co., 4 Eq. 588, 3 Ch. 493; Henderson v. Lacon, 5 Eq. 249; Blake's Case, 34 Beav. 639 ; Cargill v. Bower, 10 C. D. 502; Hall v. Old Talargoch Co., 3 C. D. 749. And "Orders," infra.

A single misrepresentation of or omission to state a material fact may be sufficient to entitle a person to repudiate his shares.

Moreover the danger of ambiguous statements should be borne in Careless mind, for "if persons publishing a prospectus use such careless language language. that their statements, literally read, are untrue, although this literal sense is different from what they intended, this amounts to a misrepresentation, for which they may be responsible to any one who is deceived or injured by it." Per Lord Chelmsford, L. C., Hallows v. Fernie, 3 Ch. 475. And a fortiori the person deceived will be entitled to repudiate his shares. See infra, p. 387.

A person who issues a prospectus "is not only answerable for what he in his own mind intended to represent, but he is answerable for what any one might reasonably suppose to be the meaning of the words he has used." Per Cotton, L. J., Arkwright v. Newbold, 17 C. Div. 322.

It is true that the shares cannot be repudiated unless the applicant Reliance on was induced to enter into the contract by the misrepresentation or prospectus. omission. But it must be borne in mind that the onus of proving nonreliance, at any rate in the case of a misrepresentation, is on the company; for "if it is a material representation calculated to induce [the shareholder] to enter into the contract, it is an inference of law that he was induced by the representation to enter into it, and in order to take