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first part of the Act.
25 & 26 Vict. C. 89
What description of
FORMATION OF COMPANIES.
THE first part of the Companies Act, 1862, relates to the constitution and incorporation of companies and associations; and applies to companies and associations of all descriptions.
Companies of three descriptions may be formed under the Act. 1. A company limited by shares. 2. A company limited by guarantee. 3. An unlimited
The differences between those companies have been already alluded to (a), and will be fully explained in this chapter.
It may be well to premise, at the outset, that the limited com- choice between the two descriptions of limited companies will depend on the following considerations :
pany to be
A company limited by shares is the same as an ordinary joint stock company, and will probably be preferred in all cases where the company has a capital divided into shares, and is intended to be brought out on the Stock Exchange, as the comparative novelty of
(a) Supra, pp. 18, 21-25.
a company limited by guarantee is likely to depreciate the marketable value of the shares.
On the other hand, every company that is supported by annual subscriptions, or is formed on the principle of mutual assurance, must necessarily, for the reasons already stated (a), assume the form of a company limited by guarantee, if it desire to acquire limited liability. Moreover, it is to be recollected that even in the case of a joint stock company, the guarantee form presents some advantages. It enables the company to deal with its capital as it likes, by diminishing the amount of its shares, or cancelling or repaying part of its capital; privileges denied to a company limited by shares, save under the stringent conditions imposed by the Act of 1867 (b).
Again, if the guarantee be large, that form of company is well adapted to secure a large amount of credit, as the guarantee constitutes a reserved fund for payment of the debts of the company.
The only statutory requirements for the formation Mode of of a company limited by shares are, that seven persons company should subscribe a document, called a memorandum of shares. association, and register it, when subscribed, in the c. 89, s. 6. joint stock companies office.
25 & 26 Vict.
Every subscriber must take at least one share, and 8. 8. write opposite his name the number of shares he takes.
There can be no difficulty in understanding the Memo
(a) Supra, p. 23.
(b) 30 & 31 Vict., c. 139, ss. 9, 20.
25 & 26 Vict.
association. memorandum, as a form marked A. is given in the second schedule annexed to the Act of 1862, and sufficiently explains itself.
c. 89, s. 8, sch. 2, form
25 & 26 Vict
c. 89, s. 17,
A small fee, proportioned to the nominal capital, is sch. 1, table charged on registration, the amount of which may be learned by reference to Table B., in the 1st schedule of the Act.
c. 89, ss. 14, 15, 16.
To register in this simple mode, the promoters of the company must be satisfied with Table A. of the Act, which provides numerous rules for the internal regulation of the company; otherwise they must, at the time of registering the memorandum, register a code of regulations called in the Act "Articles of Association."
These articles may contain any rules the promoters 25 & 26 Vict. think proper to adopt, provided they do not infringe the provisions of the Act. In form, they must resem. ble Table A., and a fee of 58. will be payable for regis tration.
on memorandum of association.
Articles of association must be printed before being registered. They require the same stamp as a deed.
Such is a short summary of the creation of a com pany limited by shares; but success depends so much on the manner in which a company is formed, that it will be useful to go through, in detail, the various steps to be taken, pointing out the questions likely to arise, and the mode of solving them.
Returning to Form A. in Sch. II. of the Act, the memorandum of association will be found to state the
25 & 26 Vict. following particulars :
(1.) The name of the proposed company.
c. 89, & 6, sch. 2,
(2.) The part of the United Kingdom, whether form A. 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.
(5.) The amount of capital with which the company proposes to be registered, divided into shares of a certain fixed amount.
Little need be said with respect to the name. It Name. should be as short as possible, consistently with expressing generally the nature of the company, and must conclude with the word "Limited."
The registered office fixes the domicile of a company. Office. As a general rule, it should be established in the part of Great Britain or Ireland where the greater part of the business of the company is to be carried on. In the event of legal proceedings being taken, the situation is material, as it determines the jurisdiction, whether English, Scotch, or Irish, to which the company will be subject.
The definition of the objects of the company re- Objects quires particular attention. The language used should be sufficiently large to include every business to which the company is likely to apply its resources. For example:-If a company is formed with the immediate object of establishing steam communication between South America and Liverpool, it would be shortsighted to define the objects to be "trading in steam
ships between England and South America;" for if, at any future time, the company wish to trade from Liverpool to Australia, or elsewhere, the Court of Chancery would interpose by injunction, at the suit of any discontented shareholder, on the ground that the consent of every shareholder must be obtained before the objects of the company can be altered. The proper mode, therefore, of describing the objects of such a company would be, "trading in steam-ships between England and South America, and such other parts of the world as the company may from time to time determine," thus indicating the primary object of the company, without fettering its future operations.
The statement of the capital of the company and the amount of its shares is important.
If the company intend to conduct a business dependent in a great degree on credit-say banking or discounting bills-and be formed on the principle of limited liability, the nominal capital should be considerably greater than the immediate necessities of the company require; as the balance remaining uncalled will, if the shares are in the hands of substantial holders, be a sufficient security for the creditors. On the other hand, if the object of the company be to purchase a park, such as the Aston Hall estate at Birmingham, to make gas works, or to do any other work in which the current expenses will be small as compared with the cost of acquiring the property, the capital should be of adequate amount to make the proposed purchases, but need not leave a large reserve, as