General rules. CHAPTER V. CAPITAL OF COMPANIES, AND ITS DIVISION INTO SHARES. THE capital of a company is a matter of fundamental importance. If it is too small, the undertaking will not be carried on with much chance of success; if too large, the shareholders will receive a very inadequate return on their shares. The amount should therefore be determined after a very mature and deliberate consideration of all the circumstances and contingencies of the case. It is usually fixed at formation, and forms one of the fundamental conditions of the contract (a). Hence, persons agreeing to take shares in a company with a certain capital, cannot be required to become shareholders if the amount of capital be increased or diminished (b). The contract of copartnery may however be so framed, that the amount of capital originally agreed upon is not an essential condition (c); and persons may agree to take shares in a company when the amount of capital has not been defined. In such cases subscribers cannot escape from the agreement by pleading that the company as formed has a different capital from that originally contemplated (d). Subscribers may also be estopped from maintaining this plea, by conduct, acquiescence, or adoption (e). In common law companies, the agreed-upon capital specified in the articles of copartnery or other instrument of formation cannot be altered without the consent of all the members. This arises S. 669; Caledonian Dairy Co., 1834, 12 S. 394. (a) Monro v. Edinburgh Cemetery Co., 1851, 13 D. 595. See North British Bank v. Collins, 1852, 25 Jur. 119, aff. 15 D. (H. L.) 29, 1 Macq. 369; Electric Telegraph Co., 22 Beav. 471. (b) See Turner v. Mollison, 1833, 11 (c) Previous cases. (d) Nixon v. Brownlow, 2 H. and N. 455; Norman, 5 De G. M. and G. 648. (e) Sturrock v. Thoms, 1851, 13 D. 762. from the consideration that the amount of capital in such associations forms the very basis and condition of the contract of copartnery. Not only may the profits be greatly affected by a change in the amount of capital, but the risk of loss where liability is unlimited may be indefinitely increased (a). A power to increase capital may however be conferred in the instrument of formation, and its exercise will be effectual, provided the prescribed formalities are duly observed (b). In the case of incorporated companies, where the capital has been fixed by charter, letters patent, or special act, its amount cannot be varied even with the consent of all the members, unless the incorporating instrument contains some provision to that effect (c). companies. As to companies registered under the Act 1862, it is provided Registered by sec. 12, that a company limited by shares may increase its capital by the issue of new shares, if authorized to do so by its regulations as originally framed, or as altered by special resolution in terms of secs. 50 and 51. Notice of such alteration must be given to the registrar (sec. 34). The capital of companies divided by shares cannot be diminished (sec. 12). It does not appear whether any such restriction applies to companies unlimited, or limited by guarantee. In these cases the liability of members will not be materially affected by an alteration of the capital. Table A, Schedule 1, contains articles (26, 27, and 28) applicable to the increase of capital, which, if adopted in the articles of association, will give the following regulations:-On a special resolution of the company, the directors may increase the capital by the issue of new shares. The aggregate increase, and the number of new shares, are fixed by the general meeting, and in the absence of a special direction by the directors. If no direction is given to the contrary, the new shares must be offered to the members in proportion to the shares already held by them. Shares not so accepted may be disposed of by the directors as they think most beneficial for the company. The capital so raised is considered part of the original capital, and is subject to the same provisions as to calls, forfeiture, etc. (a) Monro v. Edinburgh Cemetery Co., 1851, 13 D. 595. See also North British Bank v. Collins, 1852, 25 Jur. 119, aff. 15 D. (H. L.) 29, 1 Macq. 369; Electric Telegraph Co., 22 Beav. (c) Lindley 522. Chartered and letters patent companies. Companies formed under the Act 1845. Borrowing as distinguished from increasing capital. Division of capital. In chartered companies, whose capital has been fixed in their charters, no increase or diminution of the capital appears competent, unless perhaps power to this effect has been conferred in the instrument of formation. And the same may be said of companies privileged by letters patent, where the capital has been specified in the contract or deed of association; for in such a case the agreedupon amount of capital must be held as forming a condition in view of which the letters patent were conferred. The Consolidation Act, 1845, contains no direct provisions for the increase or diminution of the capital fixed under the special act; and therefore, unless the special act confer a power to this effect, no alteration can be made on the capital, even with the concurrence of all the members. Where, however, the company is authorized by its special act to borrow money, it is empowered by sec. 59 to raise the sums authorized to be borrowed by the creation of new shares, which are to be considered the same as the original capital as to calls, forfeiture, etc. (sec. 60), and which, if the old shares are at a premium, are to be offered to the then shareholders in proportion to the shares held by them respectively (sec. 61). The new shares vest in the parties accepting; and if not accepted, are to be disposed of by the company as seems best for the interests of the company (sec. 62). If, at the time of this increase of capital, the existing shares are not at a premium, the new shares may be issued in such manner and on such terms as the company think fit (sec. 63). But though the capital of a common law company cannot be increased without the consent of all the members, and that of an incorporated company cannot always be enlarged even with this unanimous consent, a distinction must be made between increasing capital and the mere borrowing of money to pay off debts already existing. The latter power may in general be exercised by majorities (a), and in some cases by the board of directors. The capital of companies, whether incorporate or at common law, is usually divided into shares. When the number and amount of shares have once been fixed, the general rule seems to be that (a) Bryon v. Metro. Saloon Co., 4 E. Jur. N. S. 680; Auxiliary Clipper Co., 4 K. and J. 733 (8 Vict. c. 17, ss. 40 and 41). they, like the capital, cannot afterwards be altered (a). It is an indictable offence to issue as good more shares than the prescribed number. This is, in fact, a fraud on the other shareholders (¿). it I. SHARES IN PARTNERSHIPS. The word 'share' has not been employed with much precision of meaning, and is often liable to ambiguity. Hence it is difficult, if not impossible, to give it a definition which shall be at once exhaustive and practically useful. Speaking generally, however, may be said that by a share in an ordinary partnership is meant the interest of one of the partners in the concern, by reference to which his right to participate in profits while the partnership subsists, and to receive a proportion of the free assets when it is dissolved, is determined, and in respect of which, in a question inter socios, his amount of contribution for company losses is in dubio to be ascertained. depends on This share or interest depends entirely on agreement, subject to Amount the equitable rule of the civilians, that unless each partner have agreement. some participation in the profits, or the hope of it, there can be no valid partnership (c). ascertaining. When the contract is reduced to writing, it generally contains, Modes of or ought to contain, a clause defining each partner's share. When this is so, any ambiguity of construction will be resolved by the Court. practice. But it too often happens that the contract is not reduced to Variance in writing, or contains no provision on this subject. When, in these circumstances, disputes arise as to the amount of each partner's share, it seems to have been the former practice of the Court of Session to determine the matter without the intervention of a jury. In doing so, the Court proceeded on the principle, that once the fact of partnership was established, the presumption of law was for equality, but gave effect to any evidence or circumstances from which another arrangement might fairly be inferred (d). (a) Smith v. Goldsworthy, 4 Q. B.430; but see Ambergate Ra. Co., 4 Ex. 540. (b) R. v. Mott, 2 Car. and P. 521. (c) Ersk. iii. 3, 19; Dig. lib. xvii. t. 2, 1. 29, s. 2. (d) Struthers v. Barr, 1821, 1 S. 122; M'Whirter v. Guthrie, 1822, 2 W. and S. 153, 1 S. 295, Hume 760; Blair v. Russell, 1828, 6 S. 836, and 8 S. 72. Presumptions. Joint adventures. Presumption from propor In the case of Campbell's Trs. v. Thomson (a), the House of Lords remitted with instructions to have the question tried by jury; but the Court appear still to have adhered to their former practice (b), unless the late case of the Aberdeen Bank has fixed the rule in favour of jury trial (c). This was always the custom in England (d). As to the principles upon which the amount of a partner's share is to be determined, the law both in England and Scotland appears to stand thus: If the contract be in writing, and contain a clause defining the amount, this will be conclusive. In the absence of writing, there is a presumption in favour of equality; but this is merely a presumption, and may be rebutted by evidence to the contrary (e). As a consequence of this, when the question of the existence of partnership is sent to a jury, there being no deed of copartnery, the proportional interest of each partner ought to be put in issue (ƒ). In consequence of the reversal of the judgment in Campbell's Trustees v. Thomson, it has sometimes been supposed that the law of England differed from that of Scotland in reference to the presumption of equality (g); but a careful consideration of the cases will lead to the conclusion that, when rightly understood, both systems are and always have been at one on this branch of the subject. The same rules are applied to joint adventures or partnerships in single transactions (h), and also to shares in companies when it is doubtful to how many of them each partner is entitled (¿). As a general rule, it may be stated that the amount of interest tion of profits. or share which a partner is ascertained to have in the profits of the concern, will also regulate the proportion of the capital and (a) 1829, 7 S. 650; reversed, 5 W. and S. 16, 7 Bligh 432. (b) Fergusson v. Graham, 1836, 14 S. 871; Buchanan v. Lennox, 1838, 16 S. 824. (c) 1859, 22 D. 44. (d) Lindley 573; Peacock v. Peacock, 16 Ves. 49; Binford v. Dommett, 4 Ves. 756. (e) Robinson, 20 Beav. 98; Peacock, supra; Webster v. Bray, 7 Ha. 159; Stewart v. Forbes, 1 Mac. and G. 137; compared with Aberdeen (h) Ferguson v. Graham, 1836, 14 D. 871; Buchanan v. Lennox, 1838, 16 S. 824; Robinson v. Anderson, 20 Beav. 98; M'Gregor v. Bainbrigge, 7 Ha. 164; Hanslip v. Kitton, 8 E. Jur. N. S. 835. (i) See Somes v. Currie, 1 K. and J. 605. |