Chap. XVI. transfer his share so as to enable the transferee to take his place in the company, whereas in an ordinary partnership no partner is at liberty without the consent of all the other partners to retire from the firm and substitute another person in his place as partner, and an assignment of his share does not entitle the assignee to become a partner.i

Unincorporated companies.

3

But in most respects an unincorporated company may be regarded as being a mere private partnership, which, in English law, has no existence as a legal persona distinct from the members of the firm. Each partner is the agent of the others to contract on behalf of them all as to matters within the scope of the business, and creditors contract with the partners as individuals. It follows that every member of an unincorporated company is at common law personally liable, as a partner, without limit, for the whole of the debts contracted by the company while he is a member (ante, p. 10); and, as between the members, each has a right to make his co-partners contribute in proportion to their shares towards the payment of the partnership debts. But at common law one partner could not sue other partners for contribution, and in the case of unincorporated companies with a large number of members, it was practically impossible to obtain a dissolution or winding-up of the business and an adjustment of the rights of the members inter se.5

It has been said that unincorporated companies with transferable shares are illegal at common law because the privilege of having transferable shares can only be acquired by charter or statute. A great authority is, however, of opinion that this view is wrong, and that such a company is not illegal at common law, unless it can be shown to be of a dangerous and mischievous character tending to the grievance of His Majesty's subjects. It must be remembered that the formation of a company, association, or

1 Jefferys v. Smith, 3 Russ. 158; 27 R. R. 49; Byrne v. Reid, [1902] 2 Ch. 735. Lindley, Partup. 336.

2 In Scotch law a firm or partnership is a distinct legal persona. See Bell's Principles of the Law of Scotland, § 357, and the Partnership Act, 1890 (53 & 54 Vict. c. 39), s. 4 (2).

3 Oakes v. Turquand, L. R. 2 H. L. 358, per Lord Cranworth; Ernest v. Nicholls, 6 H. L. C. 401, 417, per Lord Wensleydale.

Lindley, Partnp. 370, 383; Partnership Act, 1890, s. 24.

5 See, c.g., Van Sandau v. Moore, 1 Russ. 441, where a bill was filed against nearly 300 defendants; see the observations of Lord Eldon, C., as to the history of joint stock companies, at pp. 458 et seq., and 470 et seq.

6 See Duvergier v. Fellows, Bing. 267; 34 R. R. 578; Blundell v. Winsor, 8 Sim. 601; 42 R. R. 242. Lindley on Companies, 180.

partnership consisting of more than twenty persons for the Chap. XVI. purpose of carrying on business for gain is prohibited by the Companies Act, 1862, unless registered.1

On the other hand, a corporation is, in the eye of the law, a Corporation. person distinct from the "corporators," i.e., the members for the time being of the corporation, and the rights and obligations of the corporation are not exerciseable by or enforceable against its members; so that the only remedy of creditors of a corporation at common law is against the property of the corporation, and they have no rights against the separate property of any member of the corporation as such. Nor can a member of a corporation substitute another person as a corporator in place of himself without authority from charter or statute.s

At common law, also, every association of persons formed in order to carry on and share the profits of a business must be either a partnership or a corporation; there is no tertium quid such as the modern incorporated joint stock company, of which the individual members, though liable personally for debts of the company, may yet be liable only to a limited amount, and not, like ordinary partners, without limit.

A corporation may, at common law, be created either by Royal Charter or by Act of Parliament; but the Crown could not, in creating a corporation, impose any personal liability for its debts on the members of the corporation until, in 1826, a statute empowered it to do so.6

7

under letters patent.

In 1834 the Crown was enabled by statute by means of letters Companies patent to confer on a company certain privileges, such as the right of suing and being sued in the name of one of its officers, without incorporating it: and this may still be done under the Chartered Companies Acts, 1837, which repealed both the Acts above referred to. Thus the legislature obviated the inconvenient

Chap. XVI. necessity of making all the members of an unincorporated company parties to actions by or against the company.1

Company

by special Act.

If a company was incorporated by special Act of Parliament incorporated without any express provision as to the liability of its members, they were not personally liable for any debts of the company; but such Acts sometimes provided that the members should be liable to the extent of the amounts unpaid on their shares.2

Earlier statutes.

Winding-up
Acts.

4

An Act of 18443 enabled companies to obtain a certificate of incorporation without charter or special Act, and by an Act of 1855 they might be incorporated under the Act of 1844 with limited liability. These Acts were repealed and consolidated with some alterations and amendments by the Joint Stock Companies Acts of 1856 and 1857, which are now replaced by the Companies Act, 1862, and subsequent statutes.

The Act of 1844 above referred to did not provide for the dissolution and winding-up of joint stock companies; but in the years 1848 and 1849 certain statutes, known as the Winding-up Acts, were passed to enable shareholders to enforce rateable contributions inter se; but they gave no power to creditors to institute winding-up proceedings. The Act of 1856, however, contained provisions as to winding-up proceedings on petition to the Court by a creditor or contributory in cases where it was alleged that the company was unable to pay its debts; and in other cases on petition by the company itself. Under the previous Acts "the course which a creditor was to take in order to enforce a debt or demand was to sue the incorporated company as his debtor, and, having recovered judgment against that body, he was in the first instance to endeavour to levy his debt by an execution against it, and if that did not produce sufficient to satisfy him, then he was entitled to issue execution against any shareholder, or, within certain limits, against any of those who had been shareholders when his right arose.'

1 Oakes v. Turquand, L. R. 2 H. L.

358.

2 Lindley on Companies, 4.

37 & 8 Vict. c. 110. This was the first general Joint Stock Company Act. In the same year the 7 & 8 Vict. c. 113 obliged banking companies to be incorporated by charter only. See the sketch of these Acts by Lord Cranworth, in L. R. 2 H. L. 359.

4 18 & 19 Vict. c. 133.

9

5 19 & 20 Vict. c. 47; 20 & 21 Vict.

c. 14.

625 & 26 Vict. c. 89.

711 & 12 Vict. c. 45; 12 & 13 Viet. c. 108; and see 20 & 21 Vict. c. 78: all repealed by 25 & 26 Vict. c. 89, s. 205.

8 19 & 20 Vict. c. 47, ss. 59 et seq.; repealed by 25 & 26 Vict. c. 89, s. 205.

9 Per Lord Cranworth, Oakes v. Turquand, L. R. 2 H. L. 361.

4

1862;

panies Clauses

The most important classes of modern companies are-(1) Joint Chap. XVI. stock companies, incorporated by registration under the Com- Companies panies Act, 1862, the name and objects of the company, the under Act of amount of its capital divided into shares of a certain fixed amount, and some other particulars being set forth in a memorandum of association signed by at least seven subscribers; and (2) companies (e.g., railway companies), incorporated by special Acts of Parliament and regulated by the Companies Clauses Consolidation under ComAct, 1845, and the amending Acts, which set forth usual pro- Consolidation visions formerly inserted in special Acts incorporating joint stock Act, 1845. companies for the execution of undertakings of a public nature, and provide that such provisions, save so far as they shall be expressly varied or excepted by any such special Act, shall apply to the company incorporated by such Act and to its undertaking, so far as they shall be applicable thereto. The special Act names the amount of the capital of the company, the number of shares into which it is to be divided, and the amount of each share.

The word "capital," as has been pointed out by Lord Capital. Lindley, is used in many senses, the idea underlying its various meanings in connection with a company being that of "money obtained or to be obtained for the purpose of commencing or extending a company's business, as distinguished from money earned in carrying on its business." So-called borrowed capital, "Loan or "loan capital," is neither more nor less than a debt from the company to the person or persons who lend it.

capital."

The "nominal capital" of a company is the sum which, by the "Nominal special Act or charter, or memorandum of association, or other capital." instrument by which the company is constituted, is authorized to be raised by the company, and it is generally by that instrument divided into a specified number of shares, each share being of a fixed amount. The "subscribed capital" or "issued capital" consists of so much of the nominal capital as is subscribed by persons who, by agreeing to take shares, become liable to pay to capital." the company the amounts for which those shares have been created." The "paid up capital" consists of such part of the subscribed "Paid-up capital."

125 & 26 Vict. c. 89.

2 Ib. ss. 6-10.

38 & 9 Vict. c. 16.

+26 & 27 Vict. c. 118; 32 & 33 Viet. e. 48; 47 & 48 Vict. c. 43; 51 & 52 Vict. e. 48; 52 & 53 Vict. c. 37; Wms. P. P. 283.

58 & 9 Vict. c. 16, s. 1.

6 Lindley on Companies, Bk. III., Ch. 3, s. 1.

7 Per Fry, L.J., Re Almada Co., 38 Ch. D. 424.

"Subscribed

capital," or issued

Chap. XVI. capital as has been paid to the company or credited by the company as paid1 in respect of shares allotted and issued to the subscribers who become shareholders.

"Underwriting" shares.

Contract to take shares.

Contract to purchase shares.

"Uncalled capital."

Sometimes, on the formation of a company, an "underwriting" agreement is entered into, that is, an agreement entered into, before the shares are brought before the public, that in the event of the public not taking up the whole of them, or the number mentioned in the agreement, the underwriter will, for an agreed commission, take an allotment of such part of the shares as the public has not applied for.3

A contract to take shares to be issued by a company is constituted by an application to the company for, or an offer to take, the shares, accepted by an allotment of shares to the applicant; but there is no complete contract until the fact of the allotment is communicated to the applicant, for the acceptance of an offer must on general principles be communicated."

The nature of a contract to purchase shares, already issued in a going company, from the holder of the shares differs from that of a contract to purchase goods or chattels. It is in effect a contract by the buyer to enter into a partnership already formed, taking his share of past liabilities and his chance of future profits or losses. He has not bought any chattel or piece of property for himself; he has merged himself in a society, to the property of which he has agreed to contribute (to the amount, if any, unpaid on the shares), and the property of which, including his own contributions, he has agreed shall be used and applied in a particular way and in no other way.6

Shares in a company are generally issued not fully paid up, and in such cases the unpaid part of the shares has to be paid when demanded or "called up" at the times required by the constitution of the company. Moneys so payable in respect of

3 Ch. 272; Re Consort Mines, [1897]

1 Ch. 575; Re London Bank, [1900] 1 Ch. 220.

Pollock, Contr. 32; per Lord Blackburn, Brogden v. Met. R. Co., 2 App. Cas. 691.

Per Cairns, C., Houldsworth v. Glas gow Bank, 5 App. Cas. 324, per Lorl Hatherley, . 332, per Lord Blackburn, ib. 337, as to the nature of a contract to take shares.