perative, but simply provides a particular mode of execution, without impairing the efficiency of other modes (a).

against car

business

than seven

members.

S. 48.

Among the provisions now under consideration Prohibition is found a prohibition of great importance, in sec- rying on tion 48 It enacts that "if any company carries with less on business when the number of its members is less than seven for a period of six months after the number has been so reduced, every person who is a member of such company during the time that it so carries on business after such period of six months, and is cognizant of the fact that it is so carrying on business with fewer than seven members, shall be severally liable for the payment of the whole debts of the company contracted during such time, and may be sued for the same, without the joinder in the action or suit of any other member."

This section, by requiring at all times a minimum of seven members, is intended to prevent a colourable registration of a company. When it comes into operation, it reduces a company to the condition of an ordinary partnership; the debts of the company become the debts of the individual members, and all the advantages of registration are lost. In the case of a limited company this entails unlimited responsibility, while in the case of an unlimited company it exposes every member to the additional risk of being sued for the whole amount of debts instead of leaving him only a contributory to the company for his rate

(a) As to contracts by company, see s. 37 of Act of 1867.

Provisions for benefit of

S. 49.

S. 56.

able proportion towards payment of the debts of the company.

The consequences involved are so serious that the Act interposes a period of six months before the status of the members is altered.

Nothing, therefore, but the grossest negligence on the part of the directors, and of the greatest supineness on the part of the members, can ever permit the members of a company to be less in number than seven for a period of six months.

Publicity is at least as important to a member of a shareholder. company as to the creditor. For his benefit, therefore, it is provided, firstly, that a general meeting must be held once at least in every year; secondly, that in the case of banking companies having a capital divided into shares, one-third, and in the case of all other companies having a capital divided into shares, onefifth in value of the shareholders, or, in the case of a mutual company, one-fifth in number of the registered members may obtain an examination of the affairs of the company by inspectors appointed by the Board of Trade.

S. 58.

S. 59.

The inspectors are armed with complete authority; they may require the production of the books of the company, and examine upon oath the officers and agents of the company in relation to its business, and must make a report to the Board of Trade.

The importance of this power of inspection can hardly be over-estimated. Companies have failed most disastrously in cases where the governing body, having secured the compliance of a careless majority, have,

against the wish of the wiser minority, carried on business and contracted debts long after the time of winding up had arrived. With a vigilant minority this cannot again happen. Such a minority may, in the teeth of the directors and even of a majority of the members, compel a disclosure of the true state of the company; the disclosure, if favourable, will greatly advance its interest, if unfavourable, will prevent further disaster by enabling the minority to dissolve the company.

for inspec

supported by

S. 57.

To prevent companies being harassed by discontented Application or malignant members, a condition is made by the tion to be 57th section, that the application for inspection shall evidence. be supported by such evidence as the Board of Trade may require for the purpose of showing that the applicants have good reason for requiring such investigation to be made, and that they are not actuated by malicious motives in instituting the same; and the Board of Trade are empowered to require the applicants to give security for payment of the costs of the inquiry before appointing any inspector or inspectors.

S. 60.

Additional facilities are afforded to committees of in- Committees of investigavestigation by the 60th section, which vests in inspectors tion. appointed by the company in general meeting, all the powers given to inspectors appointed by the Board of Trade. A minority, therefore, will scarcely be justified in applying to the Board of Trade for inspection, unless they have previously failed in obtaining an inspection by officers appointed by the company, or can show that such inspectors have neglected their duties.

Another evil remedied by the Act, is the difficulty Alteration of

powers of

company by special resolution.

SH, 50, 51, 52

which companies formerly experienced in supplying defects in the instruments by which they were constituted. Suppose, for instance, that a company is formed with articles of association providing tha the directors may borrow money on mortgage, but not on bills of exchange or promissory notes.

Business commences, money is wanted, and it is found that the only securities which are marketable are bills of exchange. In such a case, previously to the Act of 1856, the company must have gone with out its money, or obtained an Act of Parliament altering its deed of settlement. Numerous examples of a similar kind occurred in practice, as it was almost impossible at the outset of a company to form a set of regulations to meet all possible contingencies.

This difficulty can no longer occur with respect to companies formed by memorandum and articles of association.

The memorandum of association contains the essential elements of a company's existence. These-styled "conditions "the Act considers immutable, with the exception, in the case of companies limited by shares. of certain provisions relating to the increase of capital and conversion of capital into stock (a).

The province of the articles of association is to pre vide for the internal regulation of the company, an here the Act declares that in all cases a company formed under the Act may, by special resolution

(a) See the provisions of the Act of 1867 with respect to reduction of capital and shares, ss. 9-20.

make new provisions in lieu of or in addition to any "regulations" (as they are termed) of the company contained in the articles of association or in Table A.

A special resolution is then defined.

Definition of special reso

S. 51.

It consists in fact of two resolutions of the members lution. assembled in general meeting, and the steps to obtain it are as follows:

1st. A notice must be issued in manner in which notices are required to be given by the company, specifying the intention to propose a resolution in the terms stated in the notice.

2nd. A meeting must be held, the resolution must be proposed, and three-fourths of the members present, either in person or by proxy, where proxies are allowed by the regulations of the company, must vote in favour of the resolution.

3rd. Notice must be given of another meeting to be held at an interval of not less than fourteen days, nor more than one month from the date of the first meeting.

4th. This second meeting must be held in pursuance of the notice; the resolution be proposed, and a majority of the members present, either in person or by proxy, where proxies are allowed, vote in its favour.

The proceedings by special resolution will be readily understood from the forms in the appendix. They appear somewhat complicated, but in practice they give rise to little difficulty. It is seldom necessary to proceed to a division on a special resolution, and the Act