PART I. THE FORMATION AND OF A COMPANY. CHAPTER I. ESTABLISHMENT Practical Directions as to the Registration, &c., matters. of a Company. UNTIL the passing of the Companies Act, 1901, the formation Part I. and registration of a company were comparatively simple Chap. 1. The provisions of that Act introduced various complications, especially in relation to directors' qualification The difficulties created by the Act of 1901 have, in a measure, been removed by the Act of 1903, which has brought the law more into conformity with the English Act of 1900. shares. In registering a company under the Act of 1903 different considerations apply where the proposed company— (a) Offers shares to the public, (b) Does not offer shares to the public, (c) Is a private company within the meaning of Part IV. of the Act. Under the Act of 1901, which first made a distinction between companies which do and companies which do not offer shares to the public, it was doubtful whether the words "company which does not issue an invitation to the public to subscribe for its shares" in Sec. 6 (3), and the words "company, where there is no invitation to the public to subscribe for its shares" in Sec. 11 (6), referred (a) to some provision in the company's constitution disabling it from offering shares to the public, or (b) whether these words referred to what had been done by the company at the time of its application for a certificate of incorporation or at the time when the company would be entitled to commence business. The writer's view is that the latter was the true meaning. The corresponding provisions in the Act of 1903, Secs. 70 (3) and 99 (6) are framed so as to remove these doubts. In each of these sections the words used are company for whose shares the public have not been invited to subscribe." This and the three succeeding chapters do not deal with private companies under Part IV. of the Act of 1903, that subject being dealt with in Chapter 8 of Part I. infra. 9 Part I. Practical Directions as to Registration. Prior to the passing of the Act of 1901, companies which did not offer shares to the public were called "private companies," although all the provisions of the Companies Acts applied to such companies. It will be convenient to distinguish these companies from private companies proper, and from companies which offer shares to the public, by calling them quasi-private companies. These companies are of two kinds— (1) Companies which are only distinguishable from public companies proper by the fact that they do not offer their shares to the public; 66 (2) Companies of the kind referred to by Lord Macnaghten in Salomon v. Salomon, 1897, A.C. 22, as one-man companies "— these latter being really private businesses carried on as limited liability companies with special restrictions on the power of members to transfer their shares. Companies registrable under the Act of 1903 may for the purposes of this Part of the book be divided into three classes 1. Companies which have, either before or after registration, offered shares to the public for subscription. These will, for convenience, be referred to as "public companies." 66 2. Companies which have not offered their shares to the public for subscription. These will be conveniently referred to as quasiprivate companies." 3. Companies registered under Part IV. of the Act of 1903, and called "private companies." There is this essential distinction between a private and a quasiprivate company, namely-a quasi-private company may at any time offer its shares to the public. If it does so before it commences business Sec. 99 of 1903 at once applies; if it does so within three years from the date when it is entitled to commence business, Sec. 70 applies, and all the requirements of Sec. 75 must be complied with. A private company, on the other hand, is disabled from issuing a prospectus inviting subscriptions for shares in its capital (Sec. 168 (5) of 1903). It is doubtless competent for a company to embody in its Memorandum a condition that no invitation shall be issued to the public to subscribe for its shares. Such a clause is, however, so far as the authorities shew and the writer is aware, unknown, even in the case of what was formerly called a "private company." If such a clause were embodied in the Articles the company might forthwith after registration amend its Articles and repeal it. There is no presumption that a company constituted according to the ordinary forms of Memorandum and Articles will or will not issue a prospectus. The Act of 1882 and Table A thereto were alike silent as to the issue of shares not subscribed for in the Memorandum. Articles of Association usually place the issue of such shares in the control of the directors by a clause enabling them to "allot or otherwise dispose of the same to such persons on such terms and conditions and in such manner as they shall think fit"; see now Table A of 1903, Art. 1. Where, therefore, a prospectus is not issued before registration, nor contemporaneously therewith, it will depend entirely on what the directors Practical Directions as to Registration. resolve to do after they enter upon their duties, whether any invitation Part I. will be offered to the public to subscribe for the company's shares; see Chap. 1. Sec. 99 (7) of 1903. Whether or not Sec. 70 applies, or has been complied with, is primarily a question for the Registrar, but as the Certificate of Incorporation when issued, is conclusive evidence that all requisitions of the Companies Act in respect of registration and of matters precedent and incidental thereto have been complied with, and that the Association is a company authorised to be registered and duly registered under that Act (Sec. 26 (4) of 1903) all irregularities are cured by the issue of the certificate (excepting perhaps in the case of a certificate procured by fraud, which would probably be avoided by the Court in a proper proceeding; see dictum of Lord Halsbury in Salomon v. Salomon, 1892, A.C. 22, at p. 30). See further as to issue of prospectus after registration in chapter on Prospectus infra. The Three Methods of Registering a Company, other than a Private Company. A company may be registered in any of the following three 1. By registering a Memorandum of Association without This is the simplest plan, the company being governed by the regulations contained in Table A (Sec. 23 of 1903). (As to the applicability of Table A, and as to the matters in which it remedies the defects of Table A of 1882, see chapter on Articles of Association infra.) A Prospectus may, of course, be subsequently issued, and Articles of Association modifying, or excluding Table A, may, at any time, be adopted by special resolution of the company. It may in some cases be advisable to let the company settle its own Articles, though in the majority of cases, where it is not intended to adopt Table A, the next method will be found most convenient. 2. By registering a Memorandum and Articles, leaving This plan will be found best in the majority of cases, and may be adopted in any case where it is anticipated that the company's shares may be offered to the public for subscription. 3. By filing and issuing a prospectus and, when Part I. Practical Directions as to Registration. The features of each of these methods and the procedure to be adopted in each case are stated hereunder : Plan I.—Procedure where a Memorandum of Association is registered without Articles and without issuing a Prospectus. The first method may be adopted in any case where shares are not being offered to the public for subscription, but may involve the subsequent inconvenience of adopting Articles, modifying or excluding Table A, by special resolution, in case the statutory regulations do not meet the special circumstances of the proposed company. The Memorandum will contain the special provisions necessary to enable the company to adopt any agreement for the sale of any property to the company, and, in case it may be desired to subsequently offer shares to the public for subscription, should contain a clause fixing the amount of "minimum subscription" as required by Sec. 95 (1) of 1903. Section 69 of 1903 and Art. 74 of Table A provide that the seven persons whose names are first signed to the Memorandum of Association shall be the directors of the company until the statutory meeting. The appointment of the desired first directors is thus rendered certain. The company may, if it be found advisable, subsequently, by special resolution, adopt articles modifying or excluding Table A. Under Plan I. the procedure for registration is quite simple. 1. Prepare the Memorandum of Association; see chapter on Memorandum of Association infra. 2. Obtain the signatures to the Memorandum of those who, it is desired, should be the first directors. Each signatory should sign his name in full, and state his occupation and address and the number of shares in the capital of the company agreed to be taken by him. As Sec. 70 has no application where no prospectus has been issued, the number of shares subscribed for in the Memorandum is immaterial, but each subscriber must take at least one share (Sec. 18 of 1903). The Memorandum must be signed by at least seven subscribers in the presence of and be attested by one witness at the least (Secs. 13, 15, and 19 of 1903 and form A in 2nd Schedule thereto). Signature by an agent verbally authorised is sufficient: Whitley Partners Ltd., 32 C.D. 337; but it is advisable to have seven subscribers who sign in their own handswriting, otherwise the Registrar will require evidence of the agent's authority. A limited company may become a shareholder if so empowered by its Memorandum of Association: Barned's Banking Co., 3 Ch. 105; New Zealand Flourmillers dc. v. Timaru Milling Co., 20 N.Z. 650; but where a partnership desires to take shares by subscribing the Memorandum each partner must sign. Practical Directions as to Registration. 3. Prepare and make a statutory declaration of compliance Part I. with the statutes in accordance with Sec. 26 (2) of 1903. Chap. 1. The following form will be accepted by the Registrar where Plan I. is followed: In the matter of The Companies Act, 1903, 1. That I am the Solicitor of the Supreme Court engaged in the Company, Limited "). 2. That the paper writing now produced to marked A is the Memorandum of Association of the said intended company. 4. That all the provisions of The Companies Act in respect of And I make this solemn declaration conscientiously believing The declaration must be duly stamped, before it can be received by the Registrar, with stamps to the value of half-a-crown in respect of each declarant. It is advisable, therefore, that where the solicitor can make the declaration he should do so. Where a Prospectus has not been issued Sec. 70 of 1903 has no application. 4. Have the Memorandum stamped as a deed not otherwise charged (Sec. 19 of 1903). 5. Apply for registration of the company by delivering to the Registrar the Memorandum of Association, together with declaration of compliance (Sec. 26 of 1903); produce to the Registrar any written authorities under which the Memorandum has been signed and lodge copies. If at least seven subscribers have signed the Memorandum in their own handswriting, the Registrar will not require evidence of authority as to other subscribers who have signed by an agent. |