Part I. To render unalterable provisions in company's constitution. Table A unsuitable. Disposal of shares. Private Companies. It is very often considered desirable, however, to render certain provisions in the constitution of a quasi-private or private company, of a kind usually included in the Articles, unalterable. In England there seems to be a practice to get the shareholders to execute a deed of covenant purporting to effect this result, and to make provision in the Articles for the execution of such deed; see Palmer's C.P., 8th ed., p. 821. How far any covenant between the company and its members, by which the members deprive themselves of the provisions of the Company Acts, can be effectual, is at least doubtful. The Articles themselves have the effect of a covenant by every member with the company (Sec. 24 (4) of 1903). A deed of covenant outside the Articles cannot, it seems to the writer, have any greater force or effect. Members have, by statute, power to alter the regulations by special resolution (Sec. 122 of 1903), and if a clause in the Articles purporting to render Articles unalterable is ineffectual, it is difficult to see how a formal deed of covenant can have any operation-even to the extent of rendering the covenantor liable to damages in the event of the Articles being altered. In Walker v. London Tramways Co., 12 C.D. 705, Jessel, M.R., held that no company could contract itself out of the provisions of Sec. 50 of the E. Act of 1862 (corresponding to Sec. 122 of N.Z., 1903); and see Peveril Gold Mines, 1898, 1 Ch. 122; Payne v. Cork Co., 1900, 1 Ch. 308; Punt v. Symons & Co., 1903, 2 Ch. 506. It seems to the writer that the only way of rendering unalterable conditions of the company's constitution (so far as the law will permit) is to insert such conditions in the Memorandum of Association. As to alteration of the Memorandum see p. 38 supra. The Articles of Association. The regulations contained in Table A are not altogether suitable for a quasi-private or private company, and will usually require amendment in the following respects:— Capital. Disposal and Allotment of Shares. Article 6 (p. 53) is suitable to the case of a private company, but it may be in some cases expedient that the share Private Companies. holders in general meeting should retain the control of the Part I. issue of shares, other than those issued by subscription of the Chap. 8. Memorandum and pursuant to the contract for sale to the company. It is usual to provide that all such shares be offered to existing members in proportion to the shares held by them, but holders of a single share may be excepted, or any other limitation may be imposed according to circumstances. Transfer of Shares. It is essential in the case of a private company that restric- Restrictions on power of tions be placed upon a shareholder's right of transfer. Perhaps transfer. the simplest plan is to restrict the right of transfer to members of the company holding not less than a certain number of shares, or to such person as the directors shall unanimously approve as a fit person to become a member of the company. Directors, if they have a discretion, are not bound to give their reasons for refusing to consent to a transfer of shares; see Bell v. Bell, 65 L.T. 245, and p. 158 infra. Compulsory Transfer of Shares and Retirement of Members. In Borland's Trustees v. Steel Bros., 1901, 1 Ch. 279, pro- Compulsory visions in Articles for compulsory retirement, and transfer of retirement. shares at a particular price were given effect to; see the clauses in that case at pp. 281 to 283 of the report. The Articles of a private company sometimes provide for compulsory retirement where a member is interested in a rival concern or otherwise acts against the interests of the company. Transmission. It is usual to place the same restrictions on transmission as Transmission. on transfer. As to the necessity for this, see Bentham Mills &c., 11 C.D. 900, and Art. 29, p. 58 supra. An exception as to transmission should be made in the case of the death of the founder or founders of the company. Meetings. Votes of Members. It may be advisable to give special voting powers to the Voting powers holders of certain classes of shares. Part I. Special pro visions as to directors. Private Companies. Directors. Where a company is formed to take over the business of a sole trader, it is usual to appoint him governing director by the Articles, with power for him to exercise all the powers of directors, to appoint other directors with limited powers, to appoint by will a successor in case of his death, or, in default of appointment, his administrator or trustees under his will to act, or otherwise according to circumstances. Similarly provision may be made for two or more permanent or governing directors. Special provision may be made for qualification, disqualification, and resignation of directors, or for the appointment of directors by the holders of certain classes of shares. Power should be given to directors to act without a board meeting. PART II. MEMBERSHIP AND ITS INCIDENTS. CHAPTER I. Membership. (1) By Subscribing the Memorandum. (2) By Application for and Allotment of Shares. (3) By Transfer or Transmission of Shares. (4) By Estoppel. Membership Generally. SECTION 21 of the Act of 1903 defines those who are by law Part II. members. But the terms of the section are not exhaustive of Chap. 1. the cases in which persons have the rights and liabilities of membership. By Sec. 21 1. Every subscriber of the Memorandum of Association; 2. Every other person who has agreed to become a member of the company, and whose name is entered on the register of members, is a member of the company. The latter head comprises (1) Persons who have contracted with the company to (2) Persons whose names are on the register and who are (3) Transferees of shares from (1) and (2) and the repre- (4) Transferees of shares as nominees of persons who have Definition of "member." Part II. Membership Generally. A company may be compelled to confer the legal rights of membership on any person who has acquired from another member "a present absolute unconditional right to have his Rights of name entered on the register "; see Moore v. The North Western membership enforceable by Bank, 1891, 2 Ch. 599; Ireland v. Hart, 1902, 1 Ch. 522. And a person who has expressly or impliedly contracted to take shares from a company or has contracted to take a transfer from a member may, se inrito, be placed on the list of members, and, though not legally a member, on the list of contributories on a winding-up. the Court. Contract of membership implied from conduct. Liabilities of membership without registration. Effect of subscribing the Memorandum By becoming a director and acting as such, a person may confer authority on the company to register his name as a member in respect of his qualification shares, and is liable on such registration, whether he knows of it or not: Brown's case, 9 Ch. 102; Isaacs' case, 1892, 2 Ch. 158; Salisbury Jones's case, 1894, 3 Ch. 356; Hercynia Copper Co., 1894, 2 Ch. 403. By Sec. 34 of 1903 a transfer may be registered on the application of the transferor. "A man may become a contributory to a company by his acts although he has not made himself legally a member of it": Spackman v. Evans, L.R. 3 H.L. 171, 208. Membership by Subscribing the Memorandum. A subscriber of the Memorandum is liable as a member though no shares have ever been allotted to him, and though his name has never been put on the register, unless he can show that the company parted with all its shares to other persons : Mackley's case 1 C.D. 247; Kipling v. Todd, 3 C.P.D. 350; Evans's case, 2 Ch. 427; London Coal Co., 5 C.D. 525. The allotment of nominally paid-up shares will not satisfy a subscriber's obligation, which is to take and pay for shares : Migotti's case, 4 Eq. 238; Drummond's case, 4 Ch. 772; Pell's case, 5 Ch. 11. Nor is the obligation of a subscriber satisfied by taking shares from another member. Neither lapse of time nor the consent of a director can save a signatory from the conséquences of his contract as a subscriber: Levick's case, 40 L.J., Ch. 180; Sidney's case, 13 Eq. 228; Tooth's case, 19 L.T. Ch. 599. The Colonial Land &c. Co. v. Bohan, N.Z. 3 S.C. 98, seems to be inconsistent with these decisions, and see infra. A subscriber of the Memorandum can only get rid of his liability as a member by transfer: Evans's case, 2 Ch. 427; and see Esparto Trading Co., 12 C.D. 191. |