The Articles of Association.

It is not absolutely necessary, in the case of a company limited by shares, to have articles of association, for if none are registered with the memorandum, the company will be governed by Table A, section 15 of the Act of 1862. But unless the company be a very trivial one, it is extremely desirable to register articles

(1) Because Table A does not provide for a number of matters which experience has shown that it is necessary to provide for; e.g., preference shares, reduction of capital, share warrants, lien, express borrowing powers, &c., &c. (2) Because Table A contains various clauses which are ambiguous or otherwise objectionable, and

(3) Because it is generally desirable by the articles to appoint the first directors for a definite period; to give them power to appoint others; to fix their remuneration; to authorise them to adopt preliminary contracts, &c., &c.

In some cases, in order to save the expense of printing a full set of articles, a short set is prepared, containing some clauses which are to apply to the company in addition to those contained in Table A, and declaring that some of the clauses in Table A shall not apply, or shall be modified. Where this is done, the regulations of the company will consist of Table A plus the short articles. See ss. 14 & 15 of the Act of 1862. Such an arrangement is not very convenient, but at any rate it is far better than relying on Table A alone. See supra, p. 2.

What clauses and provisions should be inserted in the articles must in a great measure be left to the discretion of the solicitor or counsel who prepares the articles. He will, of course, have regard to the objects and wishes of the founders, and to the circumstances of the case. But great care should be taken that the documents are settled by some really competent person; for the inconveniences and difficulties which are occasioned by ill-framed documents are sometimes very serious and perplexing. Some people fancy that a copy of any old memorandum and articles can be readily touched up and adapted for an intended company, forgetting that each year the law is more or less modified by statute and judicial decisions, that the weak points in old clauses are disclosed and new clauses found

requisite, and that the documents of an old company may have been framed in special circumstances, and may be quite unsuited to a new one. The common result of an imperfect memorandum of association is that the company finds its objects inconveniently limited, or dangerously ambiguous; and imperfect articles of association give rise to frequent inconveniences and uncertainty. For example, at a general meeting a poll is demanded; the chairman says he shall take it at once; a shareholder objects, and says the meeting ought to be adjourned, so that absent shareholders may have an opportunity of attending. The chairman says that the regulations provide that the poll shall be taken in such manner as the chairman directs, and he asks the solicitor his opinion. The solicitor says that the regulations are not clear, and that having regard to a recent case in the Court of Appeal, it is doubtful whether regulations so framed authorise the chairman to take the poll at once. Of course the regulations ought not to have left the point in doubt. Again, shares are allotted upon the terms of a prospectus which provides for payment of so much on application and the balance by instalments; some of the shareholders omit to pay the instalments, and the question arises whether the shares can be forfeited. On turning to the articles it is found that the forfeiture clauses only apply to " calls," and the solicitor advises that an instalment is not a call. The point ought to have been provided for. These are only a few out of many examples that might be given. Forms of articles, which a competent hand can readily adapt to most cases, will be found in Company Precedents, p. 95, et seq.

The articles must be printed. Formerly they were usually printed on paper the size of foolscap, but a smaller size is more convenient for the use of members, directors, and others, and is now very commonly used.

They must be signed by the same persons who subscribe the memorandum of association, and witnessed in the same way. The number of shares taken by the subscribers need not be set opposite their signatures to the articles.

Registration of Memorandum and Articles.

The memorandum and articles having been duly executed, they should be registered. For this purpose they must be taken to the Registrar of Joint Stock Companies at Somerset House [or elsewhere, as the case may be, see supra, p. 69], and tendered for registration by filling up the necessary form. The proper stamps will have to be impressed and paid for, i.e., on the memorandum a 10s. deed stamp, a 5s. registration stamp, and also stamps in proportion to the nominal amount of the capital. See And on the articles a 10s. deed stamp, supra, p. 70.

and a 58. registration stamp.

The documents having been stamped, and appearing to be in proper form, the Registrar will file them, and give a certificate under his hand, stating that the company is incorporated and limited. The Act of 1862 provides that upon the issue of the certificate the company shall come into existence as a body corporate: section 18 of the Act.

As soon as may be after the incorporation of the company, a notice, stating where the registered office of the company is, and signed by the secretary or some other person [see supra, p. 65] on behalf of the company, should be filed with the Registrar. It may be in writing, and must be stamped with a 5s. registration stamp. For form, see Company Precedents, p. 209.

At the first meeting of the directors after the incorporation of the company, resolutions will be passed appointing the secretary (supra, p. 60) and solicitor (supra, p. 61), making regulations as to meetings of directors, quorums, &c. (see supra, p. 25), directing the preparation of the seal, &c. Where there are preliminary agreements, they will be taken into consideration at the same or a subsequent meeting, and if approved, resolutions will be passed for the adoption thereof. A preliminary agreement is not binding upon the company till adopted by the directors. The adoption is sometimes effected by passing a resolution "That the agreement dated, &c., be, and the same is hereby adopted on behalf of the company." In such case notice of the adoption will be given to the vendors, and the seal will be affixed to the agreement thus:

"The above-written agreement is hereby adopted by the Company, Limited. As witness the seal of the said company this day of "

But the better plan is to indorse a short contract of novation on the original agreement. The ordinary form will be found in Company Precedents, p. 56. It only occupies a few lines.

Sometimes [supra, p. 79], the preliminary agreement, though prepared before, is not executed until after the incorporation of the company. In such case it will be expressed to be made between the vendor of the one part, and the company of the other part. Its adoption will be effected by passing a resolution of the directors for adoption and affixing the seal to the agreement. This avoids the necessity for a trustee, and has other advantages. See further, Company Precedents, p. 2.

The preliminary agreement having been adopted must, if it provides for the issue of any paid-up shares, be filed with the Registrar before the shares are issued under it. See supra, p. 6.

If the company is a private one, the next step will be to procure a transfer to the company of the property or rights comprised in the preliminary agreement, and to commence business. In the case of a public company the transfer cannot in general be procured till after the prospectus has been issued, and thereby the necessary cash capital obtained.

As to the prospectus, see further, infra, p. 90.

The allotment of shares will be effected by a resolution or resolutions of the directors as follows:

"That shares in the capital of the company be allotted as follows:

88 INDUCEMENTS TO FORMATION OF COMPANIES.

And that the secretary do give notice of allotment to the abovenamed persons respectively.'

Notice will then be given, supra, p. 3, and the names will be entered in the register of members, supra, p. 71.

INDUCEMENTS TO THE FORMATION OF
COMPANIES.

Companies may be divided into two classes: 1, Public ; 2, Private.

A public company is one which is intended to be carried on with capital or funds to be obtained by an appeal to the public, i.e., by issuing prospectuses, circulars, and advertisements. A private company is one which is intended to be carried on without any such appeal to the public.

Most of the private companies from time to time started are formed for the purpose of converting existing business concerns into companies. The inducements to such conversions, and the mode of effecting the same, are fully set forth in the Appendix, infra, p. 129.

But there are a good many private companies formed for other purposes. The great inducement to the formation of these companies is the power which the Act gives to persons forming the same of carrying on business with limited liability.

It will be borne in mind that at common law a person who goes into business, whether on his own account or as partner in a firm, is liable for all the debts incurred in the business to the full extent of his means. "If," says the law, "you want to trade, you must risk all you have." See further, infra, p. 130.

If, then, a person or persons desire to trade, or carry out some undertaking with limited liability, the prudent course is to form a private company for the purpose. Where a single person, or less than seven persons, is or are about to form a company, a few friends must be got to sign the memorandum of association, for every memorandum must be signed by at least seven persons. The extra subscribers, however, need only take one share each, say a £1 or £5 share; their services are easily obtained, and they are very commonly relations or clerks of the person or persons forming the company.