The Scheme of a Company.

therefore whatever permits the directors to speculate freely, with no consequences to fear, is the most prudent plan to be adopted in the formation of a Limited Company. Nothing can be more conducive to this than paid up shares, discharging the shareholders from all further liability. Even if the entire of the money be not required, it should be all paid; and there are divers ways in which it may be sent back again, if not wanted for the business; as in dividends, bonuses, purchases of property, and so forth.

Under the new law, this plan of paid up shares is rendered perfectly practicable in all cases by the removal of the restriction which gave Limited Liability only to shares of not less than 107. The shares in a Limited Company may now be of any amount, however small, and it would be prudent to make them very small, in order that they may be paid up without inconvenience.

It is also important to bear in mind, when drawing up the scheme of a Company with Limited Liability, that it is no longer necessary for any fixed number of shares to be subscribed before it can be incorporated. According to the old law, a considerable portion of the shares were required to be subscribed before a certificate of complete registration could be obtained. It is not so now. One share of five shillings, or less, taken by each of the seven promoters will be sufficient, whatever the nominal amount of the capital. Hence, no caution is now needed, in drawing the scheme of a Company, for limitation of the capital to be announced. It may be as well appointed at 100,000l. as at 1000l.; for even if no more than the seven shares should ever be taken, the

The Scheme of a Company.

Company will enjoy the credit of the 100,00QZ., which is its intended capital. A large capital looks better in advertisements, and inspires greater confidence. The surplus shares can remain to be taken up at any time thereafter, if the speculation succeeds, and if it should fail, no harm can possibly come of it to those who are already shareholders.

It is also necessary to premise that all the preliminary proceedings formerly required to be taken are now swept away. Provisional registration is abolished, and with it all the prohibitions against announcing the prospectus of a projected Company until it is registered. The present law takes no cognizance whatever of a Company until it is brought to the registrar to receive the certificate of incorporation. You may do anything with it you please as a preliminary process. plan may be made public, and shareholders invited, in any manner and on any terms, and it is not until the Memorandum of Association is signed that anything is to be done in pursuance of the

statute.

The

Bearing in mind this great change in the law, and its consequences as affecting the manner of getting up a Company, we will now offer such hints as experience has suggested for the most efficient performance of this important stage in the career of a Joint Stock Company; for, in this as in many other affairs, the ultimate success often depends upon the prudence with which the first step is taken. Perhaps, therefore, the reader may be not unwilling to receive some practical hints

How to get up a Company.

How to get up a Company.

Formerly, the first step was to give a title to your Company, define its object, register it provisionally, and then, and not before, to publish the prospectus of it.

But now the better course will be to form your Company first, and then to bring it before the public. For the formation of a Company, nothing more is necessary than for seven persons to subscribe a Memorandum of Association, stating the title, objects, locality, amount of proposed capital, and number of shares into which it is to be divided, and consenting each to take one share. Forthwith without subscription of the capital, with no more than the seven shares subscribed, and without a single farthing paid upthe scheme will be absolutely entitled to be incorporated, with all the privileges and personal immunities of a corporation.

Hence the most prudent course will now be to form the Company before you publish it.

Constitution of a Company.

Any seven or more persons may form an incorporated Company.

This they may do on either of the following plans :

I. With a capital divided into shares of a fixed amount, with liability limited to the amount, if any, unpaid on the shares.

II. Without a specified capital or shares, and the liability limited to such amount as the

Constitution of a Company.

members may respectively undertake to contribute to the assets of the Company, in case of its being wound up, called by the Act, a Company limited by guarantee.

III. With a capital divided into shares of a fixed amount without limitation of liability.

It will be necessary to determine at the outset which of these plans shall be adopted, for the Memorandum of Association must be framed accordingly.

The first consideration will be, whether the Company shall be constituted by way of shares or by way of guarantee.

A Joint Stock Company by shares is too well known to need elaborate description. It is formed by a definite and declared capital, divided into shares of a definite and declared amount, which shares are transferable by any holder without the consent of the other partners.

This is the only form of a trading Company hitherto known to the law. But the present Act has introduced a new one, of more than questionable propriety, as opening a wide field for fraud, to which it has given the name of "A Company limited by guarantee." Being a perfect novelty in our commercial legislation, it will be convenient to attempt a short explanation of its meaning.

A Company formed of shares states, in the Memorandum of Association, the amount of the proposed capital and the number and value of the shares. But a Company formed by guarantee states nothing of its capital, actual or proposed, but only that the persons forming it agree to hold

Constitution of a Company.

themselves liable to contribute to the assets of the Company, in the event of its being wound up, a specified amount and no more.

The practical effect, and probably the design, of this provision, is to enable wealthy persons to speculate in trade, pocketing the profits, if the business succeeds, and avoiding the losses, if it fails. It is an ingenious contrivance for the further encouragement of roguery by indefinite extension of the large protection it enjoys already.

Thus, if B. desires to speculate without risk of loss, he needs but to form a Company "Limited by Guarantee," composed of himself, children, and clerks or servants, to the number of seven, each of whom subscribes to the Memorandum of Association, declaring himself liable to the amount of 17. if the Company be wound up. B. begins the business, which is thus, in fact, his own; if it prospers, he pockets the gain; if it fails, as soon as he has withdrawn as much of his capital as he can convert, he causes it to be wound up, and all that he is then liable to pay, even though thousands of pounds may be due to creditors, is the seven pounds he and his satellites have engaged by the Memorandum of Association to contribute towards the winding-up of his own business!

Many other similar uses or abuses to which this novelty in English law is capable of being applied will present themselves at a glance to the experienced reader.

Nevertheless, it is the law, and being such, it will be open to any person to avail himself of it without reproach.