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The first of these forms is, for obvious reasons, daily falling into disuse, and more especially on account of the Members being liable to contribute to the assets of the Company, (in the event of its being wound up), to an unlimited extent.
The second form is the most convenient, and, we may add, the most popular, on account of the liability of its members never exceeding the sum represented by the shares held.
The third form is just as safe, in a pecuniary point of view, as the second; the only difference being, that the liability is limited to the sum which each Member undertakes or guarantees to subscribe, should occasion require.
PRELIMINARY MEETING,-PROSPECTUS, &c.
Having settled the two points mentioned in the last clause, the modus operandi is a very simple one, and promoters are entirely unfettered by any stipulations as to the method which they shall adopt in bringing the undertaking before the public. Indeed, it not unfrequently occurs that the company is established privately, and the shares taken up, without having recourse to the public at all.
It is customary, however, to hold a preliminary meeting, at which formal resolutions are passed, and carefully entered in a book provided for that purpose.
By these resolutions, provisional directors and officers are appointed, and a prospectus, previously drawn up, is then finally approved of and adopted. We would particularly call attention to the importance of this apparently harmless document, but which, nevertheless, has given cause to much litigation. It requires the most mature and thoughtful consideration of every person connected with the promotion of the undertaking, and should state clearly,
The nature of the proposed company and amount of capital:
The amount of deposit to be paid on application:
The amount to be paid on allotment:
The amount proposed to be called up, and the interval between each call:
The names and addresses of Directors and officers, and
The object intended to be carried out, scrupulously avoiding all exaggeration or misrepresentation of facts, as well as any allegation likely to deceive or mislead the public. Should this
precaution not be adopted, the directors will be liable to actions for the recovery of the money paid by applicants for shares; and, moreover, may be made criminally amenable, if a fraudulent intent can be shown.
See also liability to debts and penalties, Cl. 27, 295, et seq. Another important point to be settled at this meeting, is the form of the Articles of Association for the future regulation of the company, in order that the solicitor may be instructed to draw the same. All or any of the clauses contained in the Articles given in the Schedule of the "Act," (See Table A, Cl. 406,) may be adopted; and should any modification of them be deemed desirable, a resolution should be passed accordingly.
The prospectus having been duly advertised and applications. for shares having been made, accompanied by payment of deposit, a list of these should be prepared, on something like the following form.
A few loose sheets, or a small book, will answer the purpose very well, and these may be procured ready printed, with columns for
1. Application number:
Name, Description, and residence of the applicant: 4. Number of shares applied for:
5. Deposit paid:
The directors may then proceed to allot the shares and signify the same to the allotees, by enclosing for their signature a letter of allotment, agreeing to accept the shares, and to pay the calls thereon. The latter document should not embody any fresh conditions, but should be in strict accordance with the terms upon which the application was made for the shares, otherwise the applicant may decline to accept the
* In cases where no allotment of shares is made to an applicant, the amount received from him by way of deposit is returned, and inserted in the column headed "Regrets.'
No time should be lost in making the allotments of shares, especially as much inconvenience and annoyance may at any moment arise from the withdrawal of applications for same. It appears that even although deposit has been paid, the applicant may withdraw at any time prior to allotment.
If a larger number of shares are applied for than can be allotted, the deposit money of the unsuccessful applicants should be returned at once; and, for this purpose, the separate column above mentioned is used.
Should a smaller number of shares be allotted to any person than he has applied for, the surplus deposit money is always retained in satisfaction, or part satisfaction, of the sum due on allotment; but if, however, a balance in favour of applicant still remains, it should be returned; or should there be a deficiency, it must of course be made good by him.
THE MEMORANDUM OF ASSOCIATION.
The Memorandum of Association is a very simple and concise document, quite distinct from the Articles," and bearing the same stamp as a deed. It must be signed by each subscriber, and his signature attested by one witness. If the Company is an unlimited one, it must contain (S. 10,) 1. The name of the company:
2. The place where registered office is proposed to be situated; and
3. The object for which the company is formed.
(See Form D, Cl. 431.)
If limited by shares, it must contain (S. 8),
Name, with the addition of "Limited" as the last word:
2. Place of registered office:
3. Object for which it is formed:
Declaration of limited liability; and
5. Amount of capital divided into shares. (See Form A,
If limited by guarantee, it must contain (S. 9), —
2. Place of registered office:
3. Object, &c; and
Declaration that the members respectively agree to contribute the amount guaranteed by each, in the event of the company being wound up while they are
members, or within one year afterwards, for payment of debts, &c. contracted before they ceased to be members, and of the expenses of winding-up. (See Forms B and C, Cl. 427 and 429).
Note. In all companies where the capital is divided into shares, each member must take at least one, and must write opposite to his name the number of shares he takes. (S. 14.)
THE ARTICLES OF ASSOCIATION.
Although a form of Articles of Association is given in Schedule A of the "Act," yet any of the clauses comprised therein may be adopted, omitted or modified, as may best suit the convenience of the proposed company; and if it is limited by shares, it may even go a step further, and register no articles at all (S. 14); but in that case, it will be bound and regulated by the articles above mentioned, just the same as if they had been attached to the "Memorandum" on registration (S. 15).
It is, however, compulsory in the case of a company limited by guarantee, or unlimited, to register articles of association with the "Memorandum" (S. 14).
In preparing the articles, the following requirements must be strictly complied with; viz.
1. To divide the contents into separate paragraphs, numbered arithmetically:
2. If unlimited or limited by guarantee and capital divided into shares, to state amount of capital; or if capital not divided into shares, to state the number of members, in order that the Registrar may ascertain amount of fees payable thereon (S. 14.)
3. To have the articles printed and stamped as a deed: 4. To have them signed by each subscriber in the presence of and attested by at least one witness (S. 16.)
The company's solicitor will of course advise as to the form and also as to the expediency of adopting or rejecting any of the Clauses contained in the regulations given by the "Act," (See Table A, Cl. 406,) and resolutions should be passed accordingly at the meeting before referred to.
16. It will have been seen that up to the present time the proposed company is not placed under the slightest restriction. There is no limitation as to the disposal of its shares or scrip,
nor in fact as to anything else connected with its provisional existence.
It is perfectly free to do as its Directors think fit, and may receive deposits, allot shares, and enter into contracts. But it must be borne in mind that this freedom only exists as long as the undertaking remains unregistered, for in a legal point of view it is not a company at all until that takes place; neither do the allotees become members until after such incorporation, unless they have signed the Memorandum and Articles of Association.
18. If, therefore, the Articles of Association have not been prepared and attached to the Memorandum" at the time of issuing the Prospectus to be left for the inspection of intending shareholders, as is most frequently the case, they should now be drawn up and executed without further delay. The next step will be to have them registered with the Memorandum of Association, and to have the necessary fees paid-for particulars of which see the following Clauses.
19. Take the Memorandum of Association with the Articles annexed (if any), to the Registrar of Joint Stock Companies, Serjeants' Inn, pay the necessary fees according to the following scale, (quoted in Cl. 21 and 22,) and he will give you in return a certificate that the company is duly registered.
See Registration Office, Cl. 359 to 362.
Care must be taken that the company does not register under a name identical with that by which a subsisting company is already registered, or so nearly resembling the same as to be calculated to deceive, unless such existing company is being wound up and testifies its consent thereto. Should it occur, however, through inadvertence or otherwise, that a company is so registered, it may change its name with the sanction of the Registrar, who will enter the new name on the register and issue a fresh certificate of incorporation; but no such alteration shall in any way affect the company's rights or obligations, or render invalid any legal proceedings commenced by or against it (S. 20.)
See Čl. 33, 109, and 110, as to change of name by special resolution, where the effect is precisely the same as to legal proceedings, &c.