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Extension of joint-stock companies.

Limited Lia bility Act.

Companies
Bill.

mation of companies, and the Crown was empowered (a) to constitute companies by letters patent with the privilege of suing and being sued in the name of an officer of the company, and to limit the liability of the shareholders to a certain extent only per share as in such letters patent should be declared and limited.

But the immense expansion of commerce greatly encouraged the formation of associations, and even the facilities of obtaining a charter or letters patent from the Crown were found wholly inadequate for the purpose. Many companies were therefore in existence which had no corporate capacity and no power to sue and be sued in the name of their officer. To provide for these increased wants the Joint Stock Companies Act, 1844 (b), was passed, enabling companies to obtain all the corporate privileges by registration, whilst another act was passed with especial reference to railway, canal, and other public purposes (c), and several acts having for their object the winding up and dissolution of joint-stock companies (d). But as yet the power to limit the liability of partners was left in the hands of the Crown, and much dissatisfaction was felt at the mode in which such powers were exercised, the privilege being granted to some and refused to others. Inquiries were then instituted into the principle of limited liability in partnerships, and, after many years of discussion, the Limited Liability Act of 1855 was passed (e), allowing, on certain conditions as to publicity, companies to be formed on limited or unlimited liability. Considerable simplification was afterwards introduced in the whole law of joint stock companies by the Act of 1856, and this act, with two other acts passed in 1857 and 1858 (f) for the winding up of Joint Stock Companies, constitute the present law on joint stock companies, though insurance companies are excepted from those acts, and are, therefore, still governed by the Act of 1844 (g).

Since then an attempt has been made to consolidate the whole law on companies, and a Bill on the subject was passed by the House of Lords and committeed in the House of Commons in the session of 1860. It being now probable that the same

(a) 7 W. IV. and 1 Vict. c. 73.

(b) 7 & 8 Vict. c. 110.

(c) 8 & 9 Vict. c. 116.

(d) 11 & 12 Vict. c. 45; 12 & 13

Vict. c. 108.

(e) 18 & 19 Vict. c. 133.
(f) 19 & 20 Viet. c. 47.

(g) 7 & 8 Vict. c. 108.

bill may pass into law during the present session (1862), we defer giving the statute law on the subject to a later portion of this work.

SECTION I.

WHAT IS A JOINT STOCK COMPANY,

BRITISH LAW.

A joint stock company is a partnership whereof the capital is or is to be divided into shares, transferable without the express consent of all the members. It differs from a partnership in the large and fluctuating number of members of which it is composed, and in the extent of the authority entrusted to its members.

What is a joint stock company.

Joint stock companies are either incorporated or unincor- Joint stock companies porated. Incorporated companies are those incorporated either incorporated or unincorpoby Royal charter by special acts of parliament, such as com- rated. panies for railways, canals, docks, or waterworks, or companies registered under the Joint Stock Companies Act, with a liability limited or unlimited. Unincorporated companies are those formed for mining on the cost-book principle, and constituted under the Letters Patent Act as well as banking companies formed under the 7 Geo. IV. c. 46.

SECTION II.

LIABILITY OF PROJECTORS OF JOINT STOCK COMPANIES.

is formed.

Persons combining as promoters of a joint stock company liability till Copartnership either by charter or under an act of parliament are not the company partners. A company does not exist till it is formed; and each promoter is only liable for that portion of the expenses which he himself either actually or implied by law may be held to have sanctioned (a).

Whoever acts as promoter or member of the provisional com- Projectors mittee of any company is liable on all contracts entered into by

(a) Hamilton v. Smith, 28 L. J. Ch. 404.

liable for the

contracts they

enter into.

Liable for each other

when acting under authority.

Or whether

the party represented himself as having authority.

Consent to act as provisional committee-man necessary.

If project abortive, money deposited to be restored.

Accounts to be given.

Right to sue

subscribers for deposit.

himself or by any third party under an authority special or general from him (a). Such authority will not be presumed from the mere fact of his having consented to act as a promoter or member of the provisional committee, or even from his having allowed his name to be printed and published in a prospectus, but must be established by evidence of such act on his part as will be held to constitute an authority special or general (b). If he has, by words or conduct, represented himself as having given such authority, and if the contract has been truly entered into on the faith of his representation, he will be stopped from disputing the truth of it, and will be liable as if the authority had been directly established.

To render a provisional committee-man liable for any contract made by the committee it must be proved that he consented to associate himself with the parties taking such steps; that he knew they were continuing to act, and that the expenses incurred were usual and reasonable (c). Such liability would in no case extend over contracts made before he became a member of such committee, or after he has ceased to be one (d).

Where the projected steps for the formation of the company have proved abortive, the promoters are bound to return to the subscribers any money deposited with them free from any deductions for expenses incurred (e).

The managers of a projected company are bound to render to their subscribers an account of the moneys received and of the expenses incurred, and to apply the funds in their hands to the liquidation of the liabilities of the company (f). They have, on the other hand, a right to sue the subscribers for the sum they have agreed to subscribe, or for the deposits which they were to make on the allotment of the shares, provided the directors have acted bond fide and the contract for the allotment of shares was complete (g).

(a) Bailey v. Macaulay, 13 Q. B. 815; Reynell v. Lewis, and Wyld v. Hopkins, 15 M. & W. 517.

(b) Patrick v. Reynold, 1 C. B. N. S. 727.

(c) Barrett v. Blunt, 2 C. & K. 272.

(d) Newton v. Belcher, 6 Railw.

Cases, 38; Bremner v. Chamberlayne, 2 C. & K. 560.

(e) Nockells v. Crosby, 3 B & C. 751.

(f) Cooper v. Webb, 15 Sim. 454; Colbery v. Smith, 2 M. & Rob. 96. (g) Duke v. Dove, 1 Ex. 36; Duke v. Forbes, 1 Ex. 356.

from condi.

Where in the carrying out of the undertaking the directors Departure have in any material condition departed from the terms of the tions. prospectus issued, a subscriber will not be bound to assume the character and duties of a member of the company except he has by his act acquiesced in the doings of the directors (a). Contracts entered into by the promoters of a company prior to incorporation are not binding upon the company unless they corporation are adopted when it is in actual operation or unless they have received the full benefit of the consideration for which the adopted. agreement stipulated in its behalf (b).

The rights of members of a joint stock company among themselves are determined by the deed of settlement; whenever the deed is silent and no regular charter exists, they are governed by the general law of partnerships.

Contracts

prior to in

not binding

unless

SECTION III.

FORMATION OF COMPANIES.

The prospectus setting forth the object and conditions of the company constitutes the contract on the faith of which the public accept shares; and if a person is induced by the fraudulent representations therein contained to take shares in the same, such allottee may be entitled to the damages for the injury he may have thereby suffered (c).

The prospec

tus is the

basis of the company.

shares.

Shares are considered as allotted when the deposits on the Allotment of shares as required by the prospectus are received from the applicant, and a scrip is issued to him declaring him entitled to the indicated number of shares in the company.

The simple acceptance of shares in a company is not suffi- Liability of cient to make the parties liable to pay the preliminary expenses

for the same (d). The members

(a) Pitchford v. Davis, 5 M. & W. 2; Wastab v. Spottiswoode, 15 M. & W. 514.

(b) Williams v. St. George's Harbour Company, 3 Jurist, N. S. 1014; Edward v. The Grand Junction Railway Company, 1 My. & C. 651.

(c) Gerhard v. Bates, 2 E. & B. 476;

of the provisional committee

Taylor v. Ashton, 11 M. & W. 401;
Clarke v. Dickson, 4 Jurist, N. S. 832
---5 Jurist, N. S. 1027; Burt v. British
Nation Life Assurance Association, 5
Jurist, N. S. 355.

(d) Hutton v. Thompson, Norris v.
Cooper, 3 H. L. C. 11.

the allottee.

Rights of the company against ori

ginal allottees.

Original

allottee may transfer his share after registration, but cannot abandon the liability by selling his scrips.

having never acquired the relation of partners, are not liable as
such for each others' debts (a). To make the allottee liable for
the expenses, it must be shown that he has authorised the
making of such expenses, or that in accepting the scrip he has
entered into an obligation to pay for the same.

When the company is incorporated, it has a right to
register as shareholders the original allottee to whom the
scrips were issued, and he cannot free himself from the respon-
sibilities by transferring such scrip to another (b), though the
company may consent to accept another shareholder instead of
himself.

The original allottee may, after his name has been placed in the register, transfer his shares according to the regulations of the company (c), but he cannot compel the purchaser of his scrips to take the shares off his hands (d), nor has the company any direct remedy against him (e).

Agreement to take shares.

Every shareholder is a

member of the

company.

A share is a

SECTION IV.

WHAT CONSTITUTES A MEMBER OF A JOINT STOCK COMPANY.

An agreement to take shares may result either from a subscription to a contract as required in the case of railway bills, or from a letter of application combined with the letter of allotment, either with or without the addition of a prospectus, provided the letter of application contains an unconditional offer. The possession of a share gives all the right of membership in a joint stock company.

A share in the joint stock company may be purchased or sold

(a) Bright v. Hutton, and Hutton v. Bright, 3 H. L. C. 368.

(b) Midland Great Western of Ireland Company v. Gordon, 16 M. & W. 804; Bronlow v. Nixon, 2 H. & N. 455.

(c) Midland Great Western of Ireland Company v. Gordon, 16 M. & W. 804; Newry and Enniskillen Railway Company v. Edmonds, 2 Exch. 118; Ex parte Neilson, 3 De G. M. & G. 556; Sheffield, Ashton-under-Lyne, and

Manchester Railway Company v. Wed-
cock, 7 M. & W. 574.

(d) Jackson v. Cocker, 4 Beav.
59; Humble v. Langston, 7 M. & W.
517.

(e) London Great Junction Railway Company v. Freeman, 2 M. & G. 606; Daly v. Thompson, 10 M. & W. 309; Wolverhampton New Waterworks Company v. Hawkesford, 1 Jurist, N. S. 632.

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