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tion of unregistered companies when the number of members exceeds twenty; (3) that the Act of 1862 permits the registration of companies consisting of more than seven and less than twenty members, constituted by deed of settlement or otherwise since the commencement of the Act.

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It may here be mentioned that it is now by no means uncommon for Partnership partners or intending partners who recognise the fact that it may be accordance desirable at some future time to convert their business into a private with new plan. company, to adopt a deed of partnership framed in accordance with the second plan. This can be done without introducing any additional partners, for, as already mentioned, a common law joint stock company may consist of less than seven members.

The advantage of this scheme is that if at any time it becomes desirable to convert the concern into a private registered company, the conversion can be effected with the greatest facility. For no new deed of settlement or memorandum and articles are required, no valuations or accounts with a view to conversion need be made or taken, and no disturbance of rights or liabilities will be occasioned. The parties have merely to pass a resolution to register, and proceed in the manner above stated [p. 206], and in due course the certificate of incorporation [p. 227] will be issued. But of course before registration, the number of the shareholders must be made up to seven, this will be effected by transferring a share apiece to some relations or clerks of the members of the firm. Until registration, the partners can carry on the concern just as if it was an ordinary partnership. Occasionally companies so formed register in the first instance as unlimited companies, with a view to subsequent re-registration under the Companies Act, 1879.

Below will be found a few forms relating to private companies. They The form are given by way of suggestion only, for the regulations of a private company are generally much more special than those of a public company. In the case of conversions, the documents are sometimes considered by the parties with infinite care.

Some persons, in order still further to preclude any contention that Occasional the arrangement embodied in the deed of settlement savours of a sale, precaution. consider it expedient to appropriate the whole of the shares in the original capital to the persons who bring the assets in, so that the transferors and transferees shall be the same persons. There is no objection to the adoption of these precautions, and where it is desired to increase the number of the original shareholders, it is very easy, before the execution of the deed, to give the proposed shareholders an interest in the assets equivalent to the shares which it is desired to appropriate to them. But of course there is no need to start with more than two or three members, for the number can be increased to seven by transfer of a share apiece to a few outsiders whenever it becomes desirable.

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Form 257. Agreement for sale of business.

Sale.

Consideration.

Liabilities.

Completion.

PRIVATE COMPANIES.

Preliminary Agreement.

AN AGREEMT made the day of between A., B., and C., all of (hereinafter called the vendors), of the one pt, and A. B. & Co., Limtd (hereinafter called the co), of the other pt : WHAS the vendors have for some time past carried on the business of at in the County of : AND WHAS the vendors recently determined to transfer the sd business to a co, and with a view thereto they have caused the co to be registered. AND WHAS the capital of the co is 100,0007., divided into 10,000 shares of 107. each:

NOW THESE PRESENTS WITNESS and declare as follows:

1. The vendors shall sell and the co shall pchase the goodwill of the sd business, and all other the ppty of the vendors specified in the schedule hto.

2. As pt of the conson for the sd sale the co shall allot to the vendors 9,750 107. shares in the co, which shall be considered for all pposes fully pd up, and shall be numbered inclusive, and such shares shall be allotted as follows, viz. to the sd A. 5,000, to the sd B. 4,000, and to the sd C. 750.

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shares, and the said C. for

Sometimes it is desired that the vendor shall subscribe the memorandum of association for the shares [supra, p. 13,] and in such case the agreement should recite that "the vendors have respectively subscribed the company's memorandum of association for the shares following, viz., the said A. for shares, the said B. for shares," and clause 2 will provide that as part of the consideration for the said sale the shares subscribed for as aforesaid shall be deemed for all purposes to be fully paid up, and shall be numbered, &c." See supra, p. 11. Sometimes the consideration consists in part of debentures or debenture stock or preference shares, and sometimes in part of cash to be paid out by instalments or otherwise.

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3. As the residue of the conson for the sd sale, the co shall undertake, pay, satisfy, and discharge all the debts and liabilities of the vendors in relation to the sd business, and shall indemnify the vendors and their respive heirs, exs, and ads, estates and effects, against all actions, claims, and demands in respect thereof.

4. The sale shall be completed on the the sd shares shall be issued to the vendors. Clause 6].

next,

when

day of And upon, &c. [supra, p. 8,

5. The sd business shall be deemed to have been carried on as from Form 257. the- day of last on the co's behalf, and accordingly the Retrospective vendors shall be allowed all paymts made and expenses incurred, and provision. shall account for all moneys and other benefits received by them respively in relation to such business as from that day.

Sometimes it is provided that the sale shall take effect as from some future

day.

6. Until the completion of the pchase the vendors shall carry on the Interim business in trust for the co. provision.

7. Each of the vendors shall for a period of ten years retain and hold Vendors not to part with in his own name at least one-half of the shares to be issued to him as shares. afsd.

Occasionally some such provision as the above is made.

of articles.

8. The co shall not at any time alter or attempt to alter Clauses of No alteration its articles of association as originally framed, or do or suffer anything to be done in contravention of the provisions contd in those clauses respively.

Where the articles contain special provisions in favour of the vendors, e. g., that they shall be entitled to retain office, it is occasionally deemed expedient to fortify their position by inserting in the agreement a clause as above, so that if necessary application may be made for an injunction. Where there is a negative provision in a contract the court is bound to enforce it. Allman v. Doherty, 3 App. Cas. 720; Donnell v. Bennett, 22 C. D. 836.

9. The co shall accept without investigation such title as the vendors Title accepted. have to the ppty hby agreed to be sold.

This clause is usually inserted in the case of a private company.

10. This agreemt shall be filed with the Registrar of Joint-Stock Agreement to Cos before the sd shares are issued.

IN WITNESS whereof the vendors have hereunto set their hands, and the co hath caused its seal to be affixed hereunto, the

See Form 32.

THE SCHEDULE ABOVE REFERRED TO.
[See infra, p. 356, mutatis mutandis.]

day, &c.

The memorandum of association of a private company does not differ from that of a public company, but where the company is to be formed for the purpose of converting an existing business, the acquisition of that business is usually specified as the first object. See supra, Form 50.

ARTICLES OF ASSOCIATION.

[See Form 117, supra.]

Form 117 will serve as the basis for the articles of a private company. Forms 257 to 279, infra, with the notes thereto, will show the modifications commonly

be filed.

Memorandum

of association.

Articles of

association.

Form 257. required. Sometimes it is considered expedient where an established business is converted into a company, to insert an introduction in the articles, stating briefly the circumstances in which the company is formed.

MISCELLANEOUS CLAUSES.

Form 258. 1. The shares taken by the subscribers to the Memorandum of Restriction on Association and those to be allotted pursuant to the preliminary agreemt, issue of shares shall be duly issued by the directors, but no further shares shall be issued without the authority of the co in general meeting.

Form 259.

Another form.

2. Subject to any direction to the contrary that may be given by the meeting that authorises the issue of further shares, all further shares authorised to be issued shall be offered to the members in proportion to the existing shares held by them, and such offer shall be made by notice specifying the number of the shares to which the member is entled, and limiting a time within which the offer if not accepted will be deemed to be declined, and after the expiration of such time, or on the receipt of an intimation from the member to whom such notice is given that he declines to accept the shares offered, the directors may allot or otherwise dispose of the same to such persons and upon such terms as they think fit.

A clause as above, or like the following, is not uncommonly inserted, in order to give the existing members the option of taking up the shares. It will be seen that the above clause does, but the following does not, confine the option to a member's proportion. Sometimes the option is only given to the principal shareholders, e.g., those holding more than 500l. capital.

After the issue of shares in the co's capital, any further issue of shares shall be made on such terms and conditions, and either at a premium, discount, or otherwise as shall be determined by extraordinary resolution, and unless otherwise determined by extraordinary resolution, all further shares authorised to be issued must in the first instance be offered to all the existing members for the time being. Such offer shall be made by notice specifying the number of shares authorised to be issued, and the terms of issue, and stating that the members are at libty to tender for the same during a period to be specified in the notice, and not being less than seven days from the date thereof. Each member shall be at libty to make a tender in writing, delivered at the office within the period afsd, for such shares or any of them on the terms specified, and the directors shall allot the shares to the members who so tender, and in the event of more shares being tendered for than are authorised to be issued, the shares shall (as nearly as may) be allotted to the tendering members in proportion to the capital already held by them respively. The directors shall decide by lot or otherwise any difficulty as to such allotmt.

TRANSFER AND TRANSMISSION.

Occasionally the right of transfer is left unfettered, but in most cases it is considered desirable to insert special provisions so as to prevent the introduction of objectionable members, and to secure to existing members a right of preemption when a member desires to retire, e.g. :—

1. No share shall, save as provided by Clause 8 hereof, be transferred Form 260. to a person who is not a member so long as any member is willing to Restricted pchase the same at the fair value.

Sometimes it is provided that these restrictive clauses shall not apply to certain shareholders, e.g., the founders of the concern, or to part only of the shares held by them, or only to a certain class of shares, e.g., those which are to be issued to the employés.

right of transfer.

2. In order to ascertain whether any member is willing to pchase a Notice. share, the person, whether a member of the co or not, proposing to transfer the same (hereinafter called the retiring member), shall give notice in writing (hereinafter called the transfer notice) to the co that he desires to transfer the same. Such notice shall specify the sum he fixes as the fair value, and shall constitute the co his agent for the sale of the share to any member of the co at the fair value. The transfer notice may include several shares, and in such case shall operate as if it were a separate notice in respect of each. The transfer notice shall not be revocable except with the sanction of the directors.

The words "whether a member of the company or not," are inserted in order to cover the case of executors and other persons taking by transmission. Sometimes, instead of providing as above, it is provided that a member who desires to transfer to a stranger must send in the name and address of the proposed transferee, and that the directors may approve or disapprove, and, if they disapprove, the member may require them to find a purchaser.

3. If the co shall, within the space of twenty-eight days after being Company's served with such notice, find a member willing to pchase the share power. (hereinafter called the purchasing member), and shall give notice thereof to the retiring member, he shall be bound, upon paymt of the fair value, to transfer the share to the purchasing member.

Sometimes it is desired to provide that the company shall purchase the share, but there is grave doubt whether such a provision is valid in the case of a company limited by shares. See supra, p. 88. Sometimes the foregoing provisions are modified thus:

"A person, whether a member of the company or not (hereinafter called the retiring member), who desires to transfer any share to a person who is not a member of the company, must serve the company with notice in writing (hereinafter called the transfer notice) that he desires to make such transfer. The transfer notice must specify the name and address of the proposed transferee, and the sum at which the retiring member fixes the fair value of the shares, and within fourteen days after the service of such notice the directors shall give the retiring member notice of their approval or disapproval of the transfer, and, if they approve, the proposed transfer may be forthwith carried out (subject only to clauses hereof). But if they disapprove the transfer

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