THE LAW OF JOINT STOCK COMPANIES, LIMITED. TO THE EDITOR.

Waikato Times, Volume XX, Issue 1670, 20 March 1883, Page 3

THE LA W OF JOINT STOCK COMPA NIES, LI MITED. TO THE EDITOR.

Siu. — I feel constrained to publish a short extract on the above subject with remarks thereon :—" The principle of limited liability, which was first introduced into English law in 1855, and rendered more easily practicable by the Companies Act, JSO2, and subsequent enactments has become so universally popular that there are few persons engaged in business who have not some interest, direct or indirect, therein," A company cannot be registered without the signatures of at least seven members ; and ifafc any time the number of members be reduced to less than seven, the affairs of the company must forthwith be wound upy If a registered company carries on bumness for more than six months with l<gp))an seven members, the privilege of limited liability is lost, and each member becomes individually liable for the whole of the debts of the company contracted after the expiration of such six months, in the same way as ordinary partners are personally liable for all debts of their linn. The promoters of a new company are personally responsible for the payment of all expenses incurred before it is regularly constituted ; and they must not make anj r profit out of the transaction without the knowledge ftf the company. At one time ibis salutary rule was frequently lost sight of by promoters, but a sharp lesson was taught them by the Courts, ( compelling several promoters to disgorge' large sums, which they had received In breach of good faith. In order to obtain the registration, which is essential to the the, constitution of a company, members, each' of whom holds shares, must sign a memorandum and articles of association, and forward the same to \ho registrar, whose certificate, of registration is, as it \referihe charter oMncorporation of the company. , The memorandnm of association; defines the objects for which the company'ii established, 'and no business , c«u IW um\ertylf on by a company wlegs

it be within the scope of such memorandum! The articles of association contain the rules and regulations for the management of the business of the company, Ujhd must be carefully kept within the limits prescribed 'by the memorandum. Any trading u hicli is not warranted by the memorandun is ultra vivca, and" all persons Svho authorise or take part in any .such trading are personally responsible for the consequences, without any limitaitionjos'to'the eicteitt Of their liability. Prospectuses, whether issued before or after registration, ought to be carefully drawn,' although great allowance is always made for such exaggerations of the prospective advantages of the company aa may fairly result from a sanguine temperament. Fraudulent misrepresenta- • tions, however, sometimes lead to serious consequences, sucli as iwo years' Imprisonment with hard labour. Every prospectus, and every notice inviting \persons to subscribe for shares, must specify the dates, and the names of the parties to all contracts theretofore entered into by the company, or by any any person on behalf thereof. It is usual for one of such contracts to have been entered into by the vendor with the promoters of the company, such vendor being himself practically a piomoter*, and this result arises from notice of such contract having been given before the applications for shares are sent in, viz., in the absence of fraud, no allottee of shares can complain that the price given for the property or for the goodwill of tlje business is excessive, although it may in fact be more than could have been obtained in the open market. An application for shares may be withdrawn at any time before allotment ; but when the shares have actually been allotted, the contract to take them is complete (even before notice received), and the allottee becomes a member of the company, and cannot escape from the liability incident to membership, unless he bells his shares and the company carries on business for at least 12 calender months afterwards. Every company must have a registered office where notices, writs, nnil other documents in. tended for service upon the company may be left. The subscribers of the memorandum of association are the first directors of the company, but they are bound to call a general meeting of the company within four months after registration, when directors and officers are appointed. Subsequent gcueial meetings must be held at least once a year, and may be hold oftcner, if necessary. Directors must be shaieholders, the articles of association prescribing the minimum share qualification. In addition to their limited liability in respect of the shares held by them, respectively, each director is personally responsible for the consequences of any unauthorised act which he may commit or sanction, whether the loss occasioned theieby fall upon the company or upon thiid parties. Directors who sign or authorise the issue of any false report, or other fraudulent mibstatement, are liable to criminal proceedings. The poweis and duties of directois and officers, and general management of the company, will depend upon the contents of the articles of association. There are, however, a fnw gcncr.il principles ■which may be briefly noticed. Dividends must not be paid out of capital. If, after payment on debentures and preferential changes, the net profits are exhausted, and there is no resen c fund, the diicctors nni3t not declaie any disidend payment to the shareholders, however great may be the temptation to do so. Even if it were quite certain that the results of future trading would enable them to smooth over the wrong and get the accounts into a satisfactory state, the risk involved could not be justified, and nothing is more delusive than the hope of future extraordinary gains from an unprofitable concern. The gener.il books of account and registers required by law to be kept must always be in proppr order and punctually posted up. The annual return to the registiar must be bent within the prescribed time. The name of the compn.iy must always be exhibited to the public outside the registered office, and that name must never lie used without "limited" as the last word theicof. And the several leyisters must be inxluced for inspection when required, memueis being entitled to inspect giatis, and other peiaons on payment of the meisciibod fr-e. The penalties for vaiious infractions of thu law arc heavy, and in many dscs aie •iccumul.itive fiom day to day, and may be inflicted on the offending officers personally, aa well as upon the company in its corporate capacity. Here I must pause and consider the acts of the diieotois of our pioneer cheese and bacon factory, limited. In the first instance I am informed that the shareholders have never yet seen the articles of association containing the rules and regulations for the management of the business of the company. The Companies Act, ot 18(32, declares that subscribers of the memorandum are the first directors of the company, but they are bound to call a general meeting of the company within four months after registration. Have those men, who call themselves directois of the T?e Awamutu Cheese and Bacon Factoiy, Limited, complied with the act. I say no. Therefore, they are no more directors after the above period. The only officer qualified to act is the mannger, Mr Walpole, who was appointed by the directors while in office. Therefore, it is the duty of the manager to call a meeting of shareholders, as no other person can legally do it, and as the shareholders neglect to piotcct their own interests. With your permission I will return to this subject in a future issue. — lam, &c. Lynx. Te Awamutu, March 19th, 1883.