PREFACE TO THIRD EDITION.

THE object of this work, as may be gathered from the title page, is to supply promoters, shareholders, directors, secretaries, creditors, and others with information upon the many legal and practical questions which commonly arise in connection with companies.

In England alone there are many thousand companies formed under the Act of 1862, now carrying on business. The capital invested in these companies amounts to several hundred millions sterling,* and the number of such companies increases at the rate of more than a thousand per

annum.

Moreover, Acts in terms almost identical with those of the Companies Act, 1862, are in force in India, Australia, New Zealand, and Canada, and large numbers of limited companies have been and are from time to time being formed under those Acts.

In these circumstances, it is obvious that the number of persons connected with and the interests involved in, such companies must be very large.

The Author has made extensive additions in the present edition. In particular an Appendix has been added on the conversion of business concerns into Private Companies; a subject which day by day is attracting more attention. The following abbreviations are used ;—

The Companies Act, 1862 (25 & 26 Vict. c. 89), is referred to as the Act of 1862.

The Companies Act, 1867 (30 & 31 Vict. c. 131), is referred to as the Act of 1867.

The Act 42 & 43 Vict. c. 76, is referred to as the Companies Act, 1879.

The Act 43 & 44 Vict. c. 19, is referred to as the Companies Act, 1880.

The second edition of the Author's work (intituled Company Precedents for use in relation to companies under the Companies Acts, 1862 to 1880," is referred to as "Company Precedents."

5, NEW SQUARE, LINCOLN'S INN, December, 1881.

FRANCIS B. PALMER.

See Appendix to the Report of the Select Committee of the House of Commons on the Companies Acts, 1862, 1867, Session 1877.

THE

SHAREHOLDERS' AND DIRECTORS'

LEGAL COMPANION.

PRELIMINARY.

PART I. of the Companies Act, 1862, permits of the formation of companies of three kinds: (1) limited by shares, (2) limited by guarantee, (3) unlimited.*

In this work it is intended to deal for the most part with companies limited by shares, and accordingly in the following pages, except where otherwise expressed,

66

a company means a company limited by shares.

A company is a body corporate, i.e., an artificial person created by law. It comes into existence upon the issue by the Registrar of Joint Stock Companies of a certificate stating its name, and that it is incorporated, and it continues to exist until it has been dissolved in accordance with the provisions of the Act of 1862.

Every company formed under the Act of 1862 has its "Memorandum of Association," which upon its formation is registered with the Registrar of Joint Stock Companies, and remains in his custody: it states, among other things, the name of the company, its objects, and the amount of its capital.

* As to unlimited companies, see infra, p. 97. As to companies limited by guarantee, see infra, pp. 93, 95.

As to the registration of chambers of commerce, and social, charitable, and benevolent societies without the word "Limited," see infra, p. 95.

As to the mode of forming a company under Part I. of the Act, see infra, p. 78.

As to the formation of a company by deed of settlement and registration under Part VII. of the Act, see infra, p. 167.

B

In addition to this document, most companies so formed have "Articles of Association" (also registered), which contain a series of rules for the regulation of the business, and the determination of the respective rights, duties, and powers of the shareholders, directors, and officers of the company. Those companies so formed which have not got articles of association are governed by the regulations contained in the Table marked A in the First Schedule to the Companies Act, 1862. A copy of Table A will be found infra, p. 115.

Where a company has articles of association, they generally contain a clause declaring that "Table A shall not apply to this company," and accordingly in such case Table A has no application. But in other cases the articles of association only contain a small number of rules, and provide, that subject to these rules Table A shall apply, or at any rate do not exclude Table A. In such cases the company is governed by its articles, so far as they go, and in other matters by Table A, for Table A applies so far as it is not expressly excluded. In the following pages the expression

"THE REGULATIONS "

of the company, means the regulations which in each case may happen to be applicable, whether the same are (1) articles of association entirely excluding Table A; or (2) the regulations contained in Table A, where that Table is not excluded; or (3) articles only in part excluding Table A, together with what is not excluded.

Sections 19 and 54 of the Act of 1862 require that a copy of the memorandum and articles of association, and of any special resolutions that may have been passed, shall be forwarded to every member at his request on payment of the sum of one shilling, or such less sum as may be prescribed by the company foreach copy. In default, the company incurs a penalty for each offence, not exceeding one pound. Every shareholder ought to procure a copy of the memorandum and articles of association of his company, for in the words of the Master of the Rolls "he must be taken to have read them, and must be taken to have understood them."

As to altering the regulations, see infra, p. 58.

HOW A PERSON MAY BECOME A SHARE

HOLDER.

The expressions a shareholder in a company," and " a member of a company," are synonymous in the case of a company limited by shares. Every shareholder is a member, and vice versa.

A person may become a shareholder in three ways:

1. By subscribing [i.e., signing] the memorandum of association.

2. By agreeing with the company to take a share or shares. 3. By taking a transfer of a share or shares.

As to (1). A form of memorandum will be found infra, p. 153, and it will be seen that the subscribers agree to take the number of shares set opposite their respective names. This document having been registered, each of the subscribers is legally entitled to the number of shares set opposite his name, and he may call on the directors to issue to him certificates of title to such shares, and in the absence of an agreement to the contrary, duly filed with the Registrar [supra, p. 10] before the issue of the shares, he is bound to pay for the shares in cash when called on to do so.

As to (2). This is the mode in which most persons become shareholders. The agreement is generally come to as follows:

(a) The applicant signs and sends a letter in these terms:

To the directors of the

Company, Limited. Gentlemen,-Having paid to the company's credit at the

being a deposit of

Bank the sum of per share on [10] shares in the above company, I hereby request you to allot me that number of shares; and I agree to accept the same or any less number that may be allotted to me.

(b) The company (ie., the directors acting on its behalf) allots shares in accordance with the application, and notice is sent as follows:

Sir, I am directed to inform you that in compliance with your application, dated, &c., 10 shares of £10 each in the above company have been allotted to you.

I am,

Such letter requires a 1d. impressed stamp.

&c.,

Secretary.

The applicant is not bound until the letter giving him