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COMPANY
, one of a number of words like "See also:partnership," "See also:union," "gild," "society," "See also:corporation," denoting—each with its See also:special shade of meaning—the association of individuals in pursuit of some See also:common See also:object
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The taking of meals together was, as the word signifies (cum, with, panis, See also:bread,) a characteristic of the See also:early company
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Gild had a similar meaning: but this characteristic, though it survives in the See also:Livery company (see LIVERY COMPANIES), has in See also:modern times disappeared
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The word "company" is now monopolized—in See also:British usage--by two See also:great classes of companies—(r) the See also:joint stock company, constituted under the Companies (Consolidation) See also:Act 1908, which consolidated the various acts from 1862 to 1907, and (2) the "public company," constituted under a special act to carry on some See also:work of public utility, such as a railway, docks, See also:gas-See also:works or waterworks, and regulated by the Companies Clauses Acts 1845 and 1863
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1
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Joint Stock Companies
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The joint stock company may be defined as an association of persons incorporated to promote by joint contributions to a common stock the carrying on of some commercial enterprise
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Associations formed not for "the acquisition of gain" but to promote See also:art, See also:science, See also:religion, charity or some other useful or philanthropic object, though they may be constituted under the Companies (Consolidation) Act 1908, seldom See also:call themselves companies, but adopt some name more appropriate to See also:express their See also:objects, such as society, See also:club, See also:institute, See also:college or chamber
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The joint stock company has had a See also:long See also:history which can only be briefly sketched here
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The name of " joint stock company " is--or was—used to distinguish such a company from the "regulated company," which did not See also:trade on a joint stock but was in the nature of a trade gild, the members of which had a See also:monopoly of See also:foreign trade with particular countries or places (see See also:Adam See also:
(1390); the See also:East See also:India Co., chartered by See also:Queen See also: Ten years afterwards—in 1844—a more important See also:line of policy was adopted, and all companies with some exceptions were enabled to obtain a certificate of incorporation without applying for a charter or special act . The act of 1862 carried this policy one step farther by prohibiting all associations of more than twenty persons from carrying on business without registering under the act . These were all useful amendments, but they were amendments of form rather than substance . The real vitality of joint stock enterprise lies in the co-operative principle, and the natural growth and expansion of this fruitful principle was checked until the See also:middle of the loth See also:century by the notorious risks attaching to unlimited liability . In the See also:case of an See also:ordinary partnership, though their liability is unlimited (or was until the Limited Partnerships Act 1907), the partners can generally tell what risks they are incurring . Not so the See also:share-holders of a company . They delegate the management of their business to a See also:board of See also:directors, and they may easily find them-selves committed by the See also:fraud or folly of its members to engagements which in the days of unlimited liability meant ruin . Failures like those of Overend and See also:Gurney, and of the See also:Glasgow Bank, caused widespread misery and alarm . It was not until limited liability had been grafted on the stock of the co-operative See also:system that the real potency of the principle of See also:industrial co-operation became apparent . We owe the See also:adoption of the limited liability principle to the clear-sightedness of See also:Lord See also:Sherbrooke—then Mr See also:Robert See also:Lowe--and to the vigorous advocacy of Lord See also:Bramwell . We owe it to Lord Bramwell also that the principle was made a feasible one . The See also:practical, difficulty was how to bring See also:home to persons dealing with the company See also:notice that the liability of the shareholders was limited . Lord Bramwell solved the problem by a happy See also:suggestion—" write it on my tombstone," he said humorously to a friend . This was that the company should add to its name the word " Limited "—paint it up on its premises, and use it on all invoices, bills, promissory notes and other documents . The proposal was adopted by the Legislature and has worked successfully . While limited companies have been multiplying at the See also:rate of over 4000 a See also:year, the unlimited company has become practically an See also:extinct See also:species . The growth of limited companies is, indeed, one of the most striking phenomena of our day . Their number may be estimated at quite 40,000 . Their paid-up See also:capital amounts to the stupendous sum of 1,85o,000,000 and, what is even more significant, as the 1st See also:Viscount See also:Goschen remarks in his Essays and Addresses, is that " the number of shareholders has grown in a much greater ratio than the See also:colossal growth of the aggregate capital . The profits and risks of nearly every kind of business have been spread from year to year over fresh thousands of individuals, and the middle class with moderate incomes are more and more participating in that See also:accumulation of wealth from business of every description which formerly built up the fortunes of individual traders or of bankers or of single families." It is with the limited company then—the company limited by shares—as the normal type and incomparably the most important, that this See also:article mainly deals . Companies Limited by Shares.—The Companies Act 1862, was intended to constitute a comprehensive See also:code of law applicable to joint stock trading companies for the whole of the See also:United See also:Kingdom . Recognizing the See also:mischief above alluded to—of trading concerns being carried on by large and fluctuating bodies, the act begins by declaring that no company, association or partnership, consisting of more than twenty persons, or ten in the case of banking, shall be formed after the commencement of the act for the purpose of carrying on any business which has for its object the acquisition of gain by the company, association or partnership, or by the individual members thereof, unless it is registered as a company under the act, or is formed in pursuance of some other act of See also:parliament or of letters patent, or is a company engaged in working mines within and subject to the See also:jurisdiction of the See also:Stannaries . Broadly speaking, the meaning of the act is that all commercial undertakings, as distinguished from literaryorcharitable associations, shall be registered . "Business" has a more extensive signification than "trade." Having thus cleared the ground the act goes on to provide in what manner a company may be formed under the act . The machinery is See also:simple, and is described as follows: " Any seven or more persons associated for any lawful purpose may, by subscribing their names to a memorandum of association and otherwise complying with the requisitions of this act in respect of See also:registration, form an incorporated company with or without limited liability" (§ 6) . It is not necessary that the subscribers should be traders nor will the fact that six of the subscribers are See also:mere dummies, clerks or nominees of the seventh affect the validity of the company; so the See also:House of Lords decided in Salomon v . Salomon &° Co., 1897, A . C . 22 . The document to be subscribed—the Memorandum of Association—corresponds, in the case of companies formed under the Companies Act 1862, to the charter or See also:deed of See also:settle- memorment in the case of other companies . The form of it is andum of given in the See also:schedule to the act, and varies slightly Assoclaaccording as the company is limited by shares or "O' See also:guarantee, or is unlimited . (See the 3rd schedule to the Consolidation Act 1908, forms A, B, C, D.) It is required to See also:state, in the case of a company limited by shares, the five following matters: 1 . The name of the proposed company, with the addition of the word "limited " as the last word in such name . 2 . The See also:part of the United Kingdom, whether England, See also:Scotland or See also:Ireland, in which the registered See also:office of the company is proposed to be situate . 3 . The objects for which the proposed company is to be established . 4 . A See also:declaration that the liability of the members is limited . 5 . The amount of capital with which the company proposes to be registered, divided into shares of a certain fixed amount . No subscriber of the memorandum is to take less than one share, and each subscriber is to write opposite his name the number of shares he takes . These five matters the legislature has deemed of such See also:intrinsic importance that it has required them to be set out in the company—the lineal ancestor of the modern trading company . The common law company was not an incorporated association: it was simply a great partnership with transferable shares . Companies of this kind multiplied rapidly towards the See also:close of the 17th century and the beginning of the 18th century, but they were regarded with strong disfavour by the law, for reasons not very intelligible to modern notions; the See also:chief of these reasons being that such companies purported to act as corporate bodies, raised transferable stock, used charters for purposes not warranted by the grant, and were—or were supposed to be—dangerous and mischievous, tending (in the words of the See also:preamble of the Bubble Act) to "the common grievance, See also:prejudice and inconvenience of His See also:Majesty's subjects or great See also:numbers of them in trade, See also:commerce or other lawful affairs." They were too often—and this no doubt was the real ground of the prejudice against them —utilized by unprincipled persons to promote fantastic and often fraudulent schemes . See also:Matthew See also:Green, in his poem "The See also:Spleen," notes how company's Memorandum of Association . They are the essential conditions of incorporation, and as such they must not only be stated, but the policy of the legislature has made them with certain exceptions unalterable . The most important of these five conditions is the third, and its importance consists in this, that the objects defined in the memorandum circumscribe the See also:sphere of the company's activities . This principle, which is one of public policy and convenience, and is known as the " ultra vires See also:doctrine," carries with it important consequences, because every act done or See also:contract made by a company ultra vices, i.e. in excess of its See also:powers, is absolutely null and void . The policy, too, is a See also:sound one . Shareholders contribute their See also:money on the faith that it is to be employed in prosecuting certain objects, and it would be a violation of See also:good faith if the company, i.e. the See also:majority of shareholders, were to be allowed to divert it to something quite different . So strict is the See also:rule that not even the consent of every individual shareholder can give validity to an ultra vires act . The articles of association are the regulations for See also:internal management of the company—the terms of the partnership agreed upon by the shareholders among themselves . Artie%s of A See also:model or specimen set of articles known as Table A Associa- uon. was given by the Companies Act 1862, and is appended in a revised form to the Companies (Consolidation) Act 1908 . When a company is to be registered the memorandum of association accompanied by a copy of the articles is taken to the office of the registrar of joint stock companies at See also:Somerset House, together with the following documents: 1 . A See also:list of persons who have consented to be directors of the company (See also:fee See also:stamp 5s.) . 2 . A statutory declaration by a See also:solicitor of the High See also:Court engaged in the formation of the company, or by a person named in the articles of association as a director or secretary of the company, that the requisitions of the act in respect of registration and of matters precedent and incidental thereto have been complied with (fee stamp 5s.) . 3 . A statement as to the nominal share capital (stamped with an ad valorem See also:duty of 5s. per £coo) . 4 . If no See also:prospectus is to be issued, a company must now (Companies Act 1907, s . 1; Consolidation Act 1908, s . 82) in lieu thereof See also:file with the registrar a statement, in the form prescribed by the 1st schedule to the act, of all the material facts See also:relating to the company . Till this has been done the company cannot allot any shares or See also:debentures . If these documents are in See also:order the registrar registers the company and issues a certificate of incorporation (see Companies (Consolidation) Act 1908, See also:sect . 82); on registration, the memorandum and articles of association become public documents, and any person may inspect them on See also:payment of a fee of one See also:shilling . This has important consequences, because every person dealing with the company is presumed to be acquainted with its constitution, and to have read its memorandum and articles . The articles also, upon registration, bind the company and its members to the same extent as if each member had subscribed his name and affixed his See also:seal to them . The See also:total cost of registering a company with a capital of £l000 is about £7; £io,000 about £34; £100,000 about £280 . The capital which is required to be stated in the memorandum of association, and which represents the amount which the Capital. company is empowered to issue, is what is known as the nominal capital, This nominal capital must be distinguished from the subscribed capital . Subscribed capital is the aggregate amount agreed to be paid by those who have taken shares in the company . Under the Companies Act 1900, Companies Act 1908, s . 85, a " minimum subscription " may be fixed by the articles, and if it is the directors cannot go to See also:allotment on less: if it is not, then the whole of the capital offered for subscription must be subscribed . A company may increase its capital, consolidate it, subdivide it into shares of smaller amount and convert paid-up shares into stock . It may also, with the See also:sanction of the court, otherwise reorganize its capital (Companies Act 1907, s . 39; Companies (Consolidation) Act1908, s . 45), and for this purpose modify its Memorandum of Association; but a limited company cannot reduce its capital either by See also:direct or indirect means without the sanction of the court . The inviolability of the capital is a See also:condition of incorporation—the See also:price of the privilege of trading with limited liability, and by no subterfuge will a company be allowed to evade this See also:cardinal rule of policy, either by paying dividends out of capital, or buying its own shares, or returning money to shareholders . But the See also:prohibition against reduction means that the capital must not be reduced by the voluntary act of the company, not that a company's capital must be kept intact . It is embarked in the company's business, and it must run the risks of such business . If part of it is lost there is no See also:obligation on the company to replace it and to cease paying dividends until such lost capital is repaid . The company may in such a case write off the lost capital and go on trading with the reduced amount . But for this purpose the sanction of the court must be obtained by See also:petition . A share is an See also:aliquot part of a company's nominal capital . The amount may be anything from 1s. to £1000 . The tendency of See also:late years has been to keep the See also:denomination See also:low, shares. and so to See also:appeal to a wider public . Shares of boo, or even £10, are now the exception . The most common amount is either £1 or £5 . Shares are of various kinds—ordinary, preference, deferred, founders' and management . Into what classes of shares the See also:original capital of the company shall be divided, what shall be the amount of each class, and their respective rights, privileges and priorities, are matters for the See also:consideration of the promoters of the company, and must depend on its special circumstances and requirements . A company may issue preference shares even if there is no mention of them in the Memorandum of Association, and any preference or special privilege so given to a class of shares cannot be. interfered with on any reorganization of capital except by a See also:resolution passed by a majority of shareholders of that class representing three-fourths of the capital of that class (Companies (Consolidation) Act 1908, s . 45) . The preference given may be as to dividends only, or as to dividends and capital . The See also:dividend, again, may be payable out of the year's profits only, or it may be cumulative, that is, a deficiency in one year is to be made good out of the profits of subsequent years . Prima facie, a preferential dividend is cumulative . For issuing preference shares the question for the directors is, what must be offered to attract investors . Preference shareholders are given by the Companies Act 1907, s . 23; Companies (Consolidation) Act 1908, s . 114, the right to inspect See also:balance sheets . Founders' shares—which originated with private companies—are shares which usually take the whole or See also:half the profits after payment of a dividend of 7 or To % to the ordinary shareholders . They are much less in favour than they used to be . The machinery of company formation is generally set in See also:motion by a person known as a See also:promoter . This is a See also:term of business, not law . It means, to use Chief See also:Justice See also:Cockburn's words, a person " who undertakes to form as oters a company with reference to a given project and to promotion. set it going, and who takes the necessary steps to accomplish that purpose." Whether what a person has done towards this end constitutes him a promoter or not, is a question of fact; but once an affirmative conclusion is reached, See also:equity clothes such promoter with a fiduciary relation towards the company which he has been instrumental in creating . This doctrine is now well established, and its good sense is apparent when once the position of the promoter towards the company is understood . Promoters—to use Lord See also:Cairns's See also:language in Erlanger v . New See also:Sombrero Phosphate Co., 3 A . C . 1236—"have in their hands the creation and moulding of the company . They have the See also:power of defining how and when and in what shape and under what supervision it shall start into existence and begin to act as a trading corporation." Such a See also:control over the destinies of the company involves correlative obligations towards it, and one of these obligations is that the promoter must not take See also:advantage of the company's helplessness . A promoter may sell his See also:property to the company, but he must first see that the company is furnished with an See also:independent board of directors to protect its interests and he must make full and See also:fair disclosure of his See also:interest in order that the company may determine whether it will or will not authorize its trustee or See also:agent (for such the promoter in equity is) to make a profit out of the See also:sale . It is not a sufficient disclosure in such a case for the promoter merely to refer in the prospectus to a contract which, if read by the share-holders, would inform them of his interest . They are under no obligation to inquire . It is for the promoter to bring home notice, not constructive but actual, to the shareholders . When a company is promoted for acquiring property—to work a mine or patent, for instance, or carry on a going business—the usual course is for the promoter to See also:frame a draft agreement for the sale of the property to the company or to a trustee on its behalf . The memorandum and articles of the intended company are then prepared, and an article is inserted authorizing or requiring the directors to adopt the draft agreement for sale . In pursuance of this authority the directors at the first See also:meeting after incorporation take the draft agreement into consideration; and if they approve, adopt it . Where they do so in the exercise of an honest and independent See also:judgment, no exception can be taken to the transaction; but where the directors happen to be nominees of the promoter, perhaps qualified by him and acting in his interest, the situation is obviously open to See also:grave abuse . It is not too much, indeed, to say that the fastening of an onerous or improvident contract on a company at its start, by interested promoters acting in See also:collusion with the directors, has been the See also:principal cause of the scandals associated with company promotion . Concurrently with the adoption of the contract for the acquisition of the property which is the company's raison d'etre, the directors have to consider how they will best get the company's capital subscribed . Down to the passing of the Companies Act 1900 the usual mode of doing this was to issue a prospectus inviting the public to subscribe for shares . After the act of 1900 the prospectus See also:fell into See also:general disuse . In the year 1903, out of a total of 3596 companies which registered, only 358 issued a prospectus, the directors preferring, it would seem, to See also:place the share capital through the See also:medium of brokers, See also:financial agents and other intermediaries rather than run the See also:risk of incurring, personally, liability under the stringent provisions for disclosure contained in the act (s . 1o) . Of late the prospectus has, however, returned into favour . Under the act of 1907, incorporated in the Consolidation Act 1908 (s . 82), a company, if it does not issue a prospectus, must file a statement of all the material facts relating to the company . A prospectus is an invitation to the public to take shares on the faith of the statements therein contained, and is thus the basis of the agreement to take the shares; there s1Ous therefore rests on those who are responsible for its issue an obligation to act with the most perfect good faith—uberrima /ides—and this obligation has been repeatedly emphasized by See also:judges of the highest See also:eminence . (See the observations of Kindersley, V.C., in New See also:Brunswick Railway Co. v . Muggeridge, 186o, i Dr . & Sm . 383, and of Lord See also:Herschell in Derry v . Peek, 1889, 14 A . C . 376.) Directors must be perfectly candid with the public; they must not only state what they do state with strict and scrupulous accuracy, but they must not omit any fact which, if disclosed, would falsify the statements made . This is the general obligation of directors when issuing a prospectus; but on this general obligation the legislature has engrafted special requirements . By the Companies Act 1867, it required the See also:dates and names of the parties to any contract entered into bythe company or its promoters or directors before the issue of the prospectus, to be disclosed in the prospectus; otherwise the prospectus was to be deemed fraudulent . This enactment was repealed by the Companies Act 1900, but only in favour of more stringent provisions incorporated in the Consolidation Act of 1908 . Now, not only is every prospectus to be signed and filed with the registrar of Joint Stock Companies before it can be issued, but the prospectus must set forth a longand elaborate See also:series of particulars about the company—the contents of the Memorandum of Association, with the names of the signatories, the share qualification (if any) of the directors, the minimum subscription on which the directors may proceed to allotment, the shares and debentures issued otherwise than for See also:cash, the names and addresses of the vendors, the amount paid for underwriting the company, the amount of preliminary expenses, of promotion money (if any), and the interest (if any) of every director in the promotion or in property to be acquired by the company . Neglect of this statutory duty of disclosure will expose directors to See also:personal liability . For false or fraudulent statements—as distinguished from non-disclosure—in a prospectus directors are liable in an See also:action of deceit or under the Directors' Liability Act 18go, now incorporated in the act of 1908 . This act was passed to meet the decision of the House of Lords in Peek v . Derry (12 A . C . 337), that a director could not be made liable in an action of deceit for an untrue statement in a prospectus, unless the See also:plaintiff could prove that the director had made the untrue statement fraudulently . The Directors' Liability Act enacted in substance that when once a prospectus is proved to contain a material statement of fact which is untrue, the persons responsible for the prospectus are to be liable to pay See also:compensation to any one who has subscribed on the faith of the prospectus, unless they can prove that they had reasonable ground to believe, and did in fact believe, the statement to be true . Actions under this act have been rare, but their rarity may be due to the act having had the effect of making directors more careful in their statements . Before the passing of the Companies Act 190o, it was a See also:matter for directors' discretion on what subscription they should go to allotment . They often did so on a scandalously inadequate subscription . To remedy this abuse the of Allot s6area ts . Companies Act r9oo (Companies (Consolidation) Act 1908, s . 85) provided that no allotment of any share capital offered to the public for subscription is to be made unless the amount fixed by the memorandum and articles of association and named in the prospectus as " the minimum subscription " upon which the directors may proceed to allotment has been subscribed and the application moneys—which must not be less than 5% of the nominal amount of the share—paid to and received by the company, If no minimum is fixed the whole amount of the share capital offered for subscription must have been subscribed before the directors can go to allotment . The " minimum subscription " is to be reckoned exclusively of any amount payable otherwise than in cash . If these conditions are not complied with within See also:forty days the application moneys must be returned . Any " waiver clause " or contract to waive compliance with the See also:section is to be void . An allotment of shares made in contravention of these See also:pro-visions is irregular and voidable at the See also:option of the applicant for shares within one See also:month after the first or statutory meeting of the company (Companies (Consolidation) Act, s . 86) . Even when a company has got what under the name of the "minimum subscription" the directors deem enough capital for its enter-prise, it cannot now commence business or make any binding contract or exercise any borrowing powers until it has obtained a certificate entitling it to commence business (Companies (Consolidation) Act 1908, s . 87) . To obtain this certificate the company must have fulfilled certain statutory conditions, which are briefly these: (a) The company.must have allotted shares to the amount of not less than the " minimum subscription." (b) Every director must have paid up his shares in the same pro-portion as the other members of the company . (c) A statutory declaration, made by the secretary of the company or one of the directors, must have been filed with the registrar of joint stock companies, that these conditions have been complied with . These conditions fulfilled, the company gets its certificate and starts on its business career, carrying on its business through the agency of directors, as to whose powers and duties see DIRECTORS . The Companies Act as consolidated in the act of 1908, and the regulations under them, treat the directors of a company as Meetings. the persons in whom the management of the com- pany s affairs is vested . But they also comtemplate the ultimate controlling power as residing in the shareholders . A controlling power of this kind can only assert itself through general meetings; and that it may have proper opportunities of doing so, every company is required to hold a general meeting, commonly called the statutory meeting, within—as fixed by the Companies Act 1999—three months from the date at which it is entitled to commence business . This first statutory meeting acquired new significance under the Companies Act of 1900 and marks an important See also:stage in the early history of a company . Seven days before it takes place the directors are required to send See also:round to the members a certified See also:report informing them of the general state of the company's affairs—the number of shares allotted, cash received for them, and names and addresses of the members, the amount of preliminary expenses, the See also:par-. ticulars of any contract to be submitted to the meeting, &c . Furnished with this report the members come to the meeting in a position to discuss and exercise an intelligent judgment upon the state and prospects of the company . Besides the statutory meeting a company must hold one general meeting at least•in every See also:calendar year, and not more than fifteen months after the holding of the last preceding general meeting (Companies (Consolidation) Act 1908, s . 64) . This See also:annual general meeting is usually called the ordinary general meeting . Other meetings are extraordinary general meetings . Notices convening a general meeting must inform the shareholders of the particular business to be transacted; otherwise any resolutions passed at the meeting will be invalidated . Voting is generally regulated by the articles . Sometimes a See also:vote is given to a shareholder for every share held by him, but more often a See also:scale is adopted; for instance, one vote is given for every share up to ten, with an additional vote for every five shares beyond the first ten shares up to one hundred, and an additional vote for every ten shares beyond the first hundred . In See also:default of any regulations, every member has one vote only . Sometimes preference shareholders are given no vote at all . A See also:poll may be demanded on any special resolution by three persons unless the articles require five (Companies (Consolidation) Act 1908, s . 69) . A contract to take shares is like any other contract . It is constituted by offer, See also:acceptance and communication of the acceptance to the offerer . The offer in the case of agreement for shares. shares is usually in the form of an application in See also:writing to the company, made in response to a prospectus, requesting the company to allot the applicant a certain number of shares in the undertaking on the terms of the prospectus, and agreeing to accept the shares, or any smaller number, which may be allotted to the applicant . An allottee is under the Companies (Consolidation) Act 1908, s . 86, entitled to rescind his contract where the allotment is irregular, e.g. where the minimum subscription has not been obtained . , When an application is accepted the shares are allotted, and a See also:letter of allotment is posted to the applicant . Allotment is the usual, but not the only, See also:evidence of acceptance . As soon as the letter of allotment is posted the contract is See also:complete, even though the letter never reaches the applicant . An application for shares can be withdrawn at any time before acceptance . As soon as the contract is complete, it is the duty of the company to enter the shareholder's name in the See also:register of members, and to issue to him a certificate under the seal of the company, evidencing his See also:title to the shares . The register of members plays an important part in the See also:scheme of the company system, under the Companies Act 1862 . The principle of limited liability having been once Register . adopted by the legislature, justice required not only Y that such See also:limitation of liability should be brought home by every possible means to persons dealing with the company, but also that such persons should know as far as possible what was the limited capital which was the See also:sole fund available to satisfy their claims—what amount had been called up, what remained uncalled, who were the persons to pay,799 and in what amounts . These data might materially assist a person dealing with the company in determining, whether he would give it See also:credit or not; in any case they are matters which the public had a right to know . The legislature, recognizing this, has exacted as a condition of the privilege of trading with limited liability that the company shall keep a register with those particulars in it, which shall be accessible to the public at all reasonable times . In order that this register may be accurate, and correspond with the true liability of membership for the time being, the court is empowered under the Companies Act 1862, and the Companies (Consolidation) Act 1998, s . 32, to rectify it in a See also:summary way, on application by motion, by ordering the name of a person to be entered on or removed therefrom . This power can be exercised by the court, whether the dispute as to membership is one between the company and an alleged member, or between one alleged member and another, but the machinery of the section is not meant to be used to try claims to rescind agreements to take shares . The proper proceeding in such cases is by action . The same policy of guarding against an abuse of. limited liability is evinced in the Companies Act 1862, which required that shares in the case of a limited company should be paid for in full . The legislature has allowed fathoms. ayment such companies to trade with limited liability, but the price of the privilege is that the limited capital to which alone the creditors can look shall at least be a reality . It is therefore ultra vires for a limited company to issue its shares at a See also:discount; but there was nothing in the Companies Act 1862 which required that the shares of a limited company, though they must be paid up in full, must be paid up in cash . They might be paid " in See also:meal or in See also:malt," and it accordingly became common for shares to be allotted in payment for See also:furniture, See also:plate, advertisements or services . The result was that the consideration was often illusory, shares being issued to be paid for in some commodity which had no certain criterion of value . To remedy this evil the legislature enacted in the Companies Act 1867, s . 25, that every share in any company should be held subject to the payment of the whole amount thereof in cash, unless otherwise determined by a contract in writing filed with the registrar. of joint stock companies at or before the issue of the shares . This section not infrequently caused hardship where shares had been honestly paid for in the See also:equivalent of cash, but owing to inadvertence no contract had been filed; and it was repealed by the Companies Act 1900, and the old law restored . In reverting to the earlier law, and allowing shares to be paid for in any adequate consideration, the legislature has, however, exacted a safeguard . It has required the company to file with the registrar of joint stock companies a return stating, in the case of shares allotted in whole or in part for a consideration other than cash, the number of the shares so allotted, and the nature of the consideration—property, services, &c.—for which they have been allotted . Though every share carries with it the liability to pay up the full amount in cash or its equivalent, the liability is only to pay when and if the directors call for it to be paid up . A call must See also:fix the time and place for payment, otherwise it is See also:bad . When a person takes shares from a company on the faith of a prospectus containing any false or fraudulent representations of fact material to the contract, he is entitled to rescind the contract . The company cannot keep a contract Rescission obtained by the misrepresentation or fraud of its J' e agents . This is an elementary principle of law . The misrepresentation, for purposes of rescission, need not be fraudulent; it is sufficient that it is false in fact: fraud or recklessness of assertion will give the shareholder a further remedy by action of deceit, or under the Directors' Liability Act 1890 (see supra); but, to entitle a shareholder to rescind, he must show that he took the shares on the faith or partly on the faith of the false See also:representation: if not, it was innocuous . A shareholder claiming to rescind must do so promptly . It is too late to commence proceedings after a winding-up has begun . 
The shares or other interest of any member in a company are personal See also:estate and may be transferred in the manner provided See also:Transfer by the regulations of the company
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As Lord See also:Blackburn ofshares. said, one of the chief objects when joint stock com-
panies were established was that the shares should be capable of being easily transferred; but though every share-holder has a prima facie right to transfer his shares, this right is subject to the regulations of the company, and the company may and usually does by its regulations require that a transfer shall receive the approval of the board of directors before being registered,—the object being to secure the company against having an insolvent or undesirable shareholder (the nominee perhaps of a See also:rival company) substituted for a solvent and acceptable one
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This power of the directors to refuse a transfer must not, however, be exercised arbitrarily or capriciously
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If it were, it would amount to a See also:confiscation of the shares
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Directors, for instance, cannot See also: |