any Government contract, but if the concern is converted into a private company this inconvenience is avoided, for the Act does not apply to incorporated trading companies contracting in their corporate capacity.

Accordingly, where a member of a firm, which has a Government contract, desires to enter Parliament, he should in the first place get the concern converted, and obtain a new Government contract in favour of the company: he will then be free. Again, if a member of a firm is in Parliament, and the firm finds that they are in a position to tender for Government contracts, they should in the first place convert.

CHAPTER II.

PRELIMINARY STEPS TOWARDS CONVERSION.

WE shall now proceed to describe the mode in which a business is converted into a company, and, by way of example, will take the case of the business of an ironmonger carried on by A., B. and C. in partnership, A. being entitled to half the capital, and B. and C. each to a quarter.

The first step is to ascertain the value of the business. To arrive at this a valuation will be made of the assets of the firm, including the goodwill, the stock-in-trade, business premises, moneys, bills, notes, and book and other debts due to the firm; and an account will be taken of the debts and liabilities of the firm. The valuation and account are sometimes made and taken by the partners, and sometimes by some person appointed by them. In the present case we will suppose that the partners come to the conclusion that the assets are worth £20,000, and that the debts and liabilities amount to £4200; so that the net value of the business is £15,800.

The next point is to settle the limit of liability which the partners desire to fix, for on this depends the most important term of the agreement. In many cases of conversion the owners of business concerns, whether sole or in partnership, desire to incur no personal liability to the creditors of the company; they are willing to hand over the business with its assets and liabilities to the company, but desire, if the company should be unsuccessful, not to be under any personal liability to pay its debts; they wish the remedy of the creditors of the company to be exclusively against the assets of the company. Where this is the desire of the parties the conversion must be effected on the footing that the owner or owners shall value of the business in fully paid-up shares.

receive the Upon such

H

shares there is no personal liability. They entitle the holder to votes and dividends, but no call can be made on him.* Sometimes, however, a person may be willing, besides making over his business or his share of a business to a company, to incur a personal liability to a limited extent, e.g., suppose a man desires to convert his business, valued at £10,000, into a company, and is willing to incur a liability to supply £2000 additional working capital if required; in such case the conversion will be effected on the footing that he shall receive 2000 shares of £6 each, with £5 per share credited as paid up: he will thus be liable to pay up the balance of £1 per share = £2000 when required, but will be under no further liability.

In the present case we shall suppose that A., B. and C. desire not to be under any personal liability, accordingly they will receive fully paid-up shares.

These important points having been settled, the legal documents must be prepared. The nature of these depends on whether the conversion is to be effected in accordance with the old or the new plan. These two plans are explained in Chapters III. and IV. respectively, and the cases in which the adoption of the new plan is recommended are stated at p. 172, infra.†

* In "single ship companies" (supra, p. 134) the shares are almost always fully paid up.

As to the expense of conversion: If effected in accordance with the new plan, it rarely exceeds £50 or £100, but if it is effected in accordance with the old plan, there may be a further expense for ad valorem duty on transfer. See infra, p. 172.

CHAPTER III.

CONVERSION IN ACCORDANCE WITH THE OLD PLAN

WHERE the conversion is to be effected in accordanc with the old plan the following documents must be prepared :

(a.) The Agreement.

(b.) The Memorandum of Association.

(c.) The Articles of Association.

The Agreement.

The following will give the reader some idea of the form

of such a document :

An agreement made the

A., B. and C., all of

(hereinafter called the vendors), of the one part, and A., B. and Co., Limited (hereinafter called the Company), of the other part. Whereas the vendors are the joint proprietors of a business of an ironmonger now carried on by them in partnership, under the firm name of A., B. and Co., at And whereas the registered capital of the company is £16,000, divided into 1600 shares of £10 each. Now therefore it is hereby agreed as follows::

1. The vendors shall sell and the company shall purchase, first, the leasehold hereditaments specified in the schedule hereto upon which the said business is now carried on, and the goodwill of the said business; secondly, the moneys, bills, notes, and other negotiable instruments and securities for money, and the book and other debts and choses in action of the said partnership, and the full benefit of all contracts and agreements to which the vendors are entitled in relation to the said business; and thirdly, the plant, machinery, furniture, stock-in-trade and effects of the said partnership in or about the said leasehold hereditaments.

2. As part of the consideration for the said sale the company shall allot to the vendors 1580 of its shares, and such shares shall be deemed to be fully paid up, and shall be allotted as follows, namely, to A. 790, and to B. and C. each 395.

3. As the residue of the consideration for the said sale the company shall pay, satisfy and discharge all the debts and liabilities of the vendors in relation to the said business, and shall indemnify the vendors and their respective heirs, executors and administrators,

estates and effects against all actions, claims and demands in respect thereof.

4. The said sale shall take effect as from the date hereof, and shall be completed on the

day of

next, when the certificates of title to the said shares shall be issued to the vendors. On or at any time after that day the vendors respectively will, upon the request and at the cost of the company, execute and do all such assurances and things as shall reasonably be required by the company for vesting in it the property agreed to be hereby sold, and giving to it the full benefit of this agreement.

5. All rent, taxes and other outgoings shall be paid by the vendors up to the date hereof, and, if necessary, an apportionment of outgoings shall be made between the vendors and the company.

6. Until the completion of the purchase the vendors shall carry on the said business in trust for the company.

7. The company shall accept, without investigation, the title of the vendors to the property agreed to be hereby sold.

8. This agreement shall be filed with the Registrar of Joint Stock Companies before the said shares are allotted.

As witness the hands of the vendors and the common seal of the company, the day and year first above written.

THE SCHEDULE.

(This will contain particulars of the leasehold hereditaments.)

In reference to the above agreement the following points should be noticed :—

1. The agreement, it will be observed, is made between the members of the firm and the company; accordingly it cannot be executed until after the company has been registered, because until then the company does not exist.

Sometimes it is deemed expedient to execute an agreement before the memorandum and articles of association are prepared, e.g., where there is apprehension that a member of a firm, who has assented to the conversion, may change his mind unless bound by agreement at once. In such case the agreement will be made between the vendors and some person "as trustee for the intended company," and will recite the intention to form the company, and provide that the memorandum and articles shall be in the form already approved, or in such form as the vendors, or the majority, shall approve, and will specify the terms of sale as in the above agreement.

2. In the above case the business is supposed to belong to three persons, but the agreement can readily be adapted to a case where the business belongs to a single person, or to a firm consisting of a greater or less number of persons than three,