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Issue of Shares at a Discount.

Whether shares in a company, formed under the Companies Act, 1862, can be issued at a discount, has not been decided, and is," to say the least, questionable." Lindley, 635, 638. When property or services are to be paid for by a company in shares, the price will, of course be fixed with regard to the actual, not the nominal value of the shares; and thus a company may, and often does indirectly, issue shares at a discount-e.g., a 107. share in consideration of 51. worth of property. There is no question that such a transaction is valid. If, then, the shares of a company happen to be depreciated, why should it not be at liberty, assuming that its regulations authorise the act, to sell them at their actual value for cash? The members could not complain, for ex hypothesi the regulations, which they can alter, authorise the sale; and it would not seem that the creditors are prejudiced more in this case than in the above, and, moreover, they have notice of the regulations. However, the point has yet to be decided. But see Essex Brewery Co., 30 L. T. 862, where the M. R. appears to have acquiesced in the view that such a transaction is ultra vires. Of course, an agreement as to the issue of shares at a discount must be filed in accordance with s. 25 of the Act of 1867. Supra, p. 12. If it is invalid, the filing will not better it; but if it is valid, the filing is essential.

Bonus Shares.

Sometimes, the value of a company's property having increased, it is considered desirable to create and distribute, gratis, among its members new shares, which are to be deemed fully paid up. Such shares are generally called "bonus shares," and the issue of them is called "watering the capital."

Bonus shares have been issued by a considerable number of companies, and in one well-known case to the extent of nearly a million and a half of nominal value. However, since the dicta of the Court of Appeal in Re The Gold Co., 9 C. Div., 701, it is probable that the practice of issuing bonus shares will be discontinued. It seems doubtful whether directors issuing bonus shares might not, in some cases, be indicted for conspiracy to defraud.

Sometimes a company reconstructs for the purpose of effecting such an operation. The arrangement may be that the new company shall allot two fully paid up 107. shares in respect of each 107. share in the old company. Sce further, infra, Reconstruction." There is no objection to such a scheme if the assets have really increased in value; but otherwise it might savour of fraud. Re Gold Co., ubi supra; Ambrose Lake Tin Co., 14 C. Div. 390.

Form 13.

AGREEMENT for the ISSUE of PAID-UP SHARES by way of bonus to Form 14.


day of

between The


AN AGREEMENT made the Company, Limited (hereinafter called the company), of the one part, and the several persons whose names are subscribed hereto (hereinafter called the debenture holders), of the other part: WHEREAS the company Recitals. recently issued a prospectus offering to receive applications for [1,000] debentures of the company of 7. each, and stating (inter alia) that the company would allot to the persons who should take such debentures and pay the full amount thereof to the company, one fully paid up

. share in the capital of the company in respect of every such debenture taken by them respectively: AND WHEREAS each of the

Form 14. debenture holders has taken up on the terms of the said prospectus the number of such debentures set opposite his name, and has paid to the company the full amount thereof:


Filing agree


Allotment of shares.

To be deemed paid up.

1. The company shall, &c. [clause 1, Form 11, supra.]

2. When and so soon as this agreement shall have been filed as aforesaid, the company shall allot to each of the debenture holders the number of -7. shares in the company also set opposite his name in the schedule hereto.

3. Such shares shall be deemed for all purposes to be fully paid up, and shall be numbered, with the numbers set opposite the names of the debenture holders respectively.

AS WITNESS, the common seal of the company, and the hands of the debenture holders the day, &c.


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L. S.

Denoting numbers of shares to be
allotted, both inclusive.

It is not uncommon to provide for the issue of paid-up shares to persons taking debentures; and, provided a contract is duty filed before the issue, it would seem to be a valid transaction. See In re Malaga Lead Co., Firmstone's case, 20 Eq. 524; and Uruguay Central, &c., Co., 11 C. D. 372.

Sometimes an agreement is made with a trustee for the debenture holders, their names being set forth in a schedule; and this would probably be a sufficient compliance with s. 25 of the Act of 1867. And sometimes the agreement is made with a trustee, referring to the prospectus, and providing that the company will issue to the persons who shall take debentures up on the footing of the prospectus fully paid-up shares in accordance with the terms thereof, but not stating the names of the allottees, or the number of shares to be allotted. There may, however, be some doubt whether this is a sufficient compliance with s. 25 of the Act of 1867.

Occasionally, instead of a contract as above, the vendor agrees that as an inducement to persons to take up the debentures, he will, out of the fully paid up shares issued to him by the company, transfer one or more of the shares to the allottee of cach debenture.

As to s. 25 of the Act of 1867, see supra, p. 12.

AGREEMENT for the APPOINTMENT of a MANAGER by a COMPANY. Remuneration, Salary, and Share of Profits. Compensation in case of Dismissal.

day of

between The

Company, Limited (hereinafter called the company), of the one part, and
A., of

of the other part.

Form 15.


WHEREAS by the articles of association of the company, it is provided Recital. that the said A. shall be the first general manager of the company :


to office.

1. The said A. shall be the first general manager of the company, and Appointment as such general manager shall perform the duties and exercise the powers which from time to time may be assigned to or vested in him by the directors of the company.

2. The said A. shall hold the said office, subject as hereinafter pro- Term. vided, for the term of years from the date hereof.

form duties.

3. The said A., unless prevented by ill-health, shall, during the said A. to perterm, devote the whole of his time, attention, and abilities to the business of the company, and shall obey the orders from time to time of the board of directors of the company, and in all respects conform to and comply with the directions and regulations given and made by them, and shall well and faithfully serve the company and use his utmost endeavours to promote the interests thereof.

4. There shall be paid to the said A., as such general manager, a Salary. salary which shall be as follows, namely: The sum of 3001. for the first year, the sum of 4007. for the second year, and the sum of 5007. for each succeeding year.

5. The said salary shall commence from the date hereof, and shall be When to be paid. paid quarterly on the day of, &c., the first quarterly payment day of next.

to be made on the

per articles.

6. In addition to his aforesaid salary, the said A. shall, during his Besides share tenure of the office aforesaid, be entitled to the share in the profits of of profits as the company which, under the said articles of association thereof, is payable to the general manager of the time being of the company.

7. The said A. shall be at liberty to resign the said office at any time A. may resión. upon giving to the company three calendar months' notice of his desire so to do.

years from the date hereof, the Compensation

of winding

8. If, before the expiration of company is wound up, or by any other means, except the death or resig- to A. in case nation of the said A., his tenure of the said office shall be determined, up, &c. the company shall pay to the said A. the sum of 2,0007. as liquidated damages for his loss of office.

IN WITNESS, &c. (a).

(a) See infra, p. 43, as to appointment of officers.

Form 16. AGREEMENT for the APPOINTMENT of a SECRETARY by a COMPANY. Leave of Absence. Power to Rescind.





B. entitled to leave of absence.

Shares to be

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Company, Limited (hereinafter called the company), of the one part, and B., of, of the other part. WHEREAS the capital of the company is 7., divided into shares of 7. each: AND WHEREAS the directors of the company are, by the articles of association thereof, empowered to appoint a secretary of the company, either for a fixed term or otherwise as therein mentioned, and to fix and determine his remuneration, which may be by way of salary or otherwise, as in the said articles mentioned:


1. The said B. shall be secretary of the company for a term of years, to be computed from the date hereof.

2. There shall be paid by the company to the said B., as such secretary as aforesaid, a salary at the rate of 1. per annum. Such salary shall commence from the date hereof, and shall be payable quarterly on every day of, and -day of; the first of such quarterly payments to be made on the

day of,

day of


day of

3. The said B. shall, unless prevented [supra, p. 41].

4. The said B. shall, during his tenure of the said office, be entitled to leave of absence for a period in each year not exceeding weeks, and, unless otherwise arranged between the board of directors of the company and the said B., such leave of absence shall be granted in each years as follows, namely, from the

day of to the

day of

&c., &c. The aforesaid salary of the said B. shall continue notwithstanding such leave of absence.

5. In consideration of the premises, the company shall forthwith allot allotted to B. and issue to the said B. ten of its shares, which shall be numbered in the

Power to rescind.

As to appoint

books of the company


for all purposes fully paid up.

both inclusive, and shall be deemed

6. Either of the parties hereto may determine the agreement by giving to the other not less than calendar months' notice in writing, and

upon the expiration of the period specified in such notice, the said B. shall cease to be secretary of the company (a).


(a) As to stamps, see supra, p. 6.

The Stamp Act, 1870, imposed duties on appointments to offices. See Tilsley, pp. 8, 474. These duties were repealed by 38 Vict. c. 23, s. 14.

Appointment of Officers and Agents.

The articles of a company often purport to make appointments of managers, ment of officers secretaries, agents, solicitors, aud others; but it is generally expedient, after the

Form 16.

incorporation, for persons so appointed to enter into an agreement in writing with the company, defining the terms and conditions of the appointment. Unless this precaution is taken, it may turn out, if any dispute subsequently arises, that there by articles of is no evidence of appointment, and that the officer cannot recover damages for association. breach of the agreement. It has been settled that at any rate a person not a party An agreement to the articles cannot rely on a stipulation contained therein as an agreement by should be the company with him. Eley v. Positive Government, &c., Co., 1 Ex. Div. 88. As to what is evidence of an appointment of an officer by the company, see Browning v. Great Central Mining Co., 5 H. & N. 856; 29 L. J. Ex. 399.


Moreover, if the agreement is not to be performed within a year, it is necessary to have an agreement in writing, by reason of s. 4 of the Statute of Frauds. Eley v. Positive Government, &c., Co., 1 Ex. Div. 20; S. C. 88. However, the signature of the secretary of a company to a minute recording a resolution for his appointment may be sufficient. Jones v. Victoria Graving Dock Co., 2 Q. B. Div. 314.

If an agent is appointed for a term, and is dismissed before the expiration Remedy of thereof, he is entitled forthwith to sue the company (1) for damages for breach of officer or other the agreement; or (2) he may treat the contract as rescinded, and sue on a quantum agent for meruit for the work actually performed by him. See the notes to Cutter v. Powell, Smith L. Cas. 8th ed., Vol. II.


Specific performance of a contract for hiring and service will not be decreed. No specific Stoker v. Brocklebank, &c., Co., 3 M. & G. 250; Brett v. East India, &c., Co., 2 H. & M. performance of contract 404; W. R. 596; Mair v. Himalaya Tea Co., 1 Eq. 411. But if the agent is a for future member of the company, and the regulations provide for his employment, he services. might be able to obtain an injunction restraining the directors from interfering with him. See Pulbrook v. Richmond, &c., Co., 9 C. D. 610.

A resolution or order for winding up is equivalent to a dismissal of a company's Resolution servants. Chapman's case, 1 Eq. 346; Shirreff's case, 14 Eq. 417.


or order to wind up dismissal. As to proof in winding-up. Yelland's Case.

And if an agent or servant has been appointed for a term at a salary, he will be entitled to prove in the winding up for the value of his salary for the unexpired residue of the term.

Thus, in Yelland's case, 4 Eq. 350, Yelland had been engaged for a term of five years, from 1 July, 1865, as manager, at Bideford, of a branch of the English Joint Stock Bank, at a salary of 5007. per annum, with the right to occupy the bank premises as a dwelling-house, free of rent and taxes, and to act as agent for any insurance company. An order was made to wind up the bank in May, 1866, and Yelland claimed to prove as a creditor. Page-Wood, V.-C., said: "I think that the proper course will be to ascertain the present value of an annuity of 5007., terminating on the first of July, 1870, and a proper rent for the bank premises for the rest of the term, regard being had to the risk to health and life. From this amount something will have to be deducted for Mr. Yelland being at liberty to obtain a fresh appointment; and regard must also be had to the liberty reserved to him by the agreement of acting as agent for other companies. The matter will go back to Chambers for calculation upon this principle." This case was followed in Ex parte Clark, 7 Eq. 550. But when, in addition to his salary, an agent is to have a com- Agent cannot mission on business done, he is not, upon a winding up, entitled to prove for what prove for he might have otherwise earned. Ex parte Maclure, 5 Ch. 736. This was a case future comof a voluntary winding up, and the same rule must à fortiori apply in a compulsory winding up.


In a recent case before the House of Lords, it appeared that an agreement had Rhodes v. Forbeen made between A. and B., that B. should be sole agent at Liverpool for the sale wood, H. L. of A.'s coal during a term of years, at a certain commission; A. to have the control of the prices, with power for him to rescind if B. did not sell a certain minimum, and power for B. to rescind if A. could not supply a certain minimum. A. sold his colliery before the expiration of the term, and it was held that an action by B. against A. for damages for breach of the agreement occasioned thereby would not lie, for that the agreement did not bind A. to keep his colliery, or to send any coal to Liverpool. Rhodes v. Forwood, 1 Ap. Cas. 257.

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