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Formation of companies.

Memorandum of association.

no company, association, or partnership, consisting of more than ten persons, if it be formed for the purpose of carrying on the business of banking, or of twenty persons if it be formed for the purpose of carrying on any other business that has for its object the acquisition of gain by the company, association, or partnership, or by the individual members thereof, shall be formed after the commencement of the Act (2nd November, 1862), unless it is (1) registered as a company under the Act; or is (2) formed in pursuance of some other Act of Parliament; or (3) of letters patent; or (4) is a company engaged in working mines within and subject to the jurisdiction of the Stannaries.

The aim of this enactment was stated in a leading case to be "to prevent the mischief arising from large trading undertakings being carried on by large fluctuating bodies, so that persons dealing with them did not know with whom they were contracting, and so might be put to great difficulty and expense, which was a public mischief to be repressed." (1)

The effect of non-registration is that the company is an illegal body. Its contracts are void for illegality, and cannot be enforced (2).

Any seven or more persons associated for any lawful purpose may, by subscribing their names to a memorandum of association and registering it, form an incorporated company (3). The memorandum of association must be stamped as it were a dced (4), and each member of the company is entitled to a copy for a small fee. In the case of a limited company, it must contain the following things:

(1) The name of the proposed company, with the addition
of the word " limited," as the last word in such name:
(2) The part of the United Kingdom, whether England,
Scotland, or Ireland, in which the registered office of
the company is proposed to be situate:

(3) The objects for which the proposed company is to be
established:

(4) A declaration that the liability of the members is limited :

(1) Smith v. Anderson, 15 Ch. D. 247. (2) See Smith v. Anderson, 15 Ch. D. 247, Brett's Leading Cases in Equity, p. 59,et seq.,where the authorities are reviewed. Jennings v. Hammond, 9 Q. B. D. 225; Re Padstow Total Loss Assurance Assoc., 20 Ch. D. 137; Shaw v. Benson, 11 Q. B. D. 563; Re Thomas, 14 Q. B. D. 379.

(3) Companies Act, 1862, s. 18. If any company carries on business for

six months after the number of its members has been reduced to less than seven, every member of the company so carrying on business who is cognisant of the fact that it is carrying on business with less than seven members is severally liable for the payment of the whole debts of the company contracted during that time: Companies Act, 1862, s. 48.

(*) Companies Act, 1862, s. 11.

(5) The amount of capital with which the company proposes Memoranto be registered, divided into shares of a certain fixed

amount.

Upon registration the members become a body corporate by the name contained in the memorandum capable of exercising all the functions of an incorporated company, and having perpetual succession and a common seal.

dum of

association.

It will be necessary here, in connection with the subject of the Promoters. formation of joint stock companies, to notice briefly the position of "promoters," who set in motion the machinery by which the Companies Act enables an incorporated company to be created. A "promoter" was defined by the late Chief Justice Cockburn to mean one who undertakes to form a company with reference to a given project and to set it going, and who takes the necessary steps to accomplish the object. The position of promoters has been much considered in several important cases, by which their position has been defined. "The term 'promoter,'" said Lord Justice Lindley, "involves the idea of exertion for the purpose of getting up and starting a company, or, as it is called, floating it, and also the idea of some duty towards the company imposed by or arising from the promoter's position. It is a term not of law but of business, usually summing up in a single word a number of business operations familiar to the commercial world by which a company is generally brought into existence."

"A promoter is in a fiduciary relation to the company which he promotes or causes to come into existence. If that promoter has a property which he desires to sell to the company, it is quite open to him to do so, but upon him as upon any other person in a fiduciary position, it is incumbent to make full and fair disclosure of his interest and position with respect to that property. I can see no difference in this respect between a promoter and a trustee, steward, or agent." (1)

Promoters may be classified as follows:-
:-

(1) Professional promoters are those who make a business of promoting companies.

(2) Occasional promoters are those who occasionally see and take the opportunity for bringing out a company.

(3) Promoters pro hac vice are those who enter upon the work of promotion in a particular case, and cannot be classified as either professional or occasional promoters (2).

(1) New Sombrero Phosphate Co. v. Erlanger, 5 Ch. D. 73, per James, L.J., p. 118.

VOL. II.

(2) Palmer's Precedents, 4th ed. p. 15; see as to definition of “ promoter" for the purposes of the sec2 U

The company's

name.

Memorandum of association.

No company can be registered with a name identical with another, or so resembling it as to be calculated to deceive the public (1); except in a case where the subsisting company is in the course of being dissolved, and testifies its consent in the required manner. The prospectus of a company ought to specify the dates and the names of parties to any contract made prior to its issue (2).

The company may, with the sanction of a special resolution, and with the approval of the Board of Trade, in the manner prescribed by the Act, change its name and have the new name registered, but so that no such alteration shall affect any existing rights or obligations (3).

Every limited company is bound under penalty to have its name painted or affixed in a conspicuous position on the outside of every office in which it carries on business, and to have its name engraven in legible characters on its seal and affixed to its documents (4).

The powers of the company--subject to the provisions of the Companies (Memorandum of Association) Act, 1890, which shall be presently noticed (post, p. 639)—are limited to the objects specified in the memorandum, which, when registered, binds the company and has the effect of a covenant by every member, his heirs, executors, and administrators, to observe all its conditions (5). It is "the charter, and defines the limitations of the powers of a company established under the Act," and anything done beyond its specified objects and matters fairly incidental thereto is beyond the powers of the company—is ultrà vires, as it is called, and incapable of ratification, even by the whole body of shareholders. Thus, it was held that a railway company could not subscribe a sum out of their funds towards the erection of an Imperial Institute, notwithstanding that the Institute might probably cause an increase of passenger traffic over their line (6). But an insurance company may, with a

tion: 53 & 54 Vict. c. 64 (the Director's
Liability Act, 1890), s. 3, sub-s. 2,
which provides that a person is not a
promoter by reason of his acting in a
professional capacity for persons en-
gaged in promoting the formation of
the company (post, p. 646).

() Hendriks v. Montagu, 17 Ch. D.
638; Companies Act, 1862, s. 20.

(2) Companies Act, 1867, s. 38; see the cases by which its wonderful comprehensiveness has been limited,

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view to attract customers, pay claims not legally covered by its policies (1), and a company may, with the view of getting better work from its servants, give gratuities (2), or make provision for the benefit of the family of a deceased servant (3).

The test, as was stated by the Court of Appeal, is not whether such act is bona fide—for if bona fides were the sole test a lunatic might conduct the affairs of the company and pay away its money with both hands in a manner perfectly bona fide yet perfectly irrational, but whether, as well as being done bonâ fide, it is done within the ordinary scope of the company's business, and whether it is reasonably incidental to the carrying on of the company's business for the company's benefit. "It is for the directors to judge, provided it is a matter which is reasonably incidental to the carrying on of the business of the company, and a company which always treated its employés with Draconian severity, and never allowed them a single inch more than the strict letter of the bond, would soon find itself deserted - at all events, unless labour was very much more easy to obtain in the market than it often is. The law does not say there shall be no cakes and ale, but there are to be no cakes and ale except such as are required for the benefit of the company." (4)

The Companies (Memorandum of Association) Act, 1890 (53 & 54 Vict. c. 62), provides that, subject to the provisions of the Act, a company registered under the Companies Acts, 1862 to 1886, may, by special resolution (post, p. 656), alter the provisions of its memorandum of association or deed of settlement with respect to the objects of the company, so far as may be required for any of the purposes in the Act specified, or alter the form of its constitution by substituting a memorandum and articles of association for a deed of settlement, either with or without any such alteration with respect to the objects of the company. In no case, however, is any such alteration to take effect until confirmed on petition by the court which has jurisdiction to make an order for winding up the company (post, p. 650) (5).

(1) Taunton v. Royal Insurance Co., 2 H. & M. 135.

(2) Hampson v. Price's Candle Co., 45 L. J. (Ch.) 437.

(3) Henderson v. Bank of Australasia, 40 Ch. D. 170.

(4) Hutton v. West Cork Railway Co., 23 Ch. D. 654, 671.

(5) Before confirming any such alteration the Court must be satisfied-(a) that sufficient notice has been

given to every holder of de-
bentures or debenture stock
of the company, and any
persons and class of persons
whose interests will, in the
opinion of the Court, be
affected by the alteration;
and

(b) that, with respect to every
creditor who in the opinion
of the Court is entitled to

Power for to alter objects or for

company

form of constitu

tion sub

ject to

confirma

tion by

the Court.

The circumstances under which the court may confirm, either wholly or in part, any such alteration with respect to the objects of the company, are prescribed by a subsequent section, viz., "if it appears that the alteration is required in order to enable the company

"(a) To carry on its businesses more economically or more efficiently; or

66

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(b) To attain its main purpose by new or improved means;

or

"(c) To enlarge or change the local area of its operations;

or

"(d) To carry on some business or businesses which under existing circumstances may conveniently or advantageously be combined with the business of the company; or

"(e) To restrict or abandon any of the objects specified in the memorandum of association or deed of settlement"

(1).

object, and who signifies his objection in manner directed by the Court, either his consent to the alteration has been obtained or his debt or claim has been discharged or has determined, or has been secured to the satisfaction of the Court.

The Court has a power in the case of any person or class of persons, for special reasons, to dispense with the notice required by this section.

The Act also contains the following provisions on this subject:

"An order confirming any such alteration made be made on such terms and subject to such conditions as to the Court seems fit, and the Court may make such orders as to costs as it deems proper."

"The Court shall, in exercising its discretion under this Act, have regard to the rights and interests of the members of the company, or of any class of those members, as well as to the rights and interests of the creditors, and may, if it thinks fit, adjourn the proceedings in order that an arrangement may be made to the satisfaction of the Court for the purchase of the interests of dissentient members; and the Court may give such directions and make such orders as it may think expedient for the

purpose of facilitating any such arrangement or carrying the same into effect: Provided always, that it shall not be lawful to expend any part of the capital of the company in any such purchase."

Sect. 3 provides that the expression "deed of settlement" is to include "any contract of co-partnery or other instrument constituting or regulating the company and not being an Act of Parliament, a royal charter, or letters patent."

(1) 53 & 54 Vict. c. 62, s. 1. Sect. 2 provides that where a company has altered the provisions of its memorandum of association or deed of settlement with respect to the objects of the company, or has altered the form of its constitution by substituting a memorandum and articles of association for a deed of settlement, and such alteration has been confirmed by the Court, an office copy of the order confirming such alteration, together with a printed copy of the memorandum of association or deed of settlement so altered, or together with a printed copy of the substituted memorandum and articles of association (as the case may be), shall be delivered by the company to the registrar of joint stock companies within fifteen days from the date of the order. The

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