Company

Company, one of a number of words like “partnership,” “union,” “gild,” “society,” “corporation,” denoting—each with its special shade of meaning—the association of individuals in pursuit of some common object. The taking of meals together was, as the word signifies (cum, with, panis, bread,) a characteristic of the early company. Gild had a similar meaning: but this characteristic, though it survives in the Livery company (see Livery Companies), has in modern times disappeared. The word “company” is now monopolized—in British usage—by two great classes of companies—(1) the joint stock company, constituted under the Companies (Consolidation) 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 work of public utility, such as a railway, docks, gasworks or waterworks, and regulated by the Companies Clauses Acts 1845 and 1863.

1. Joint Stock Companies.

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. Associations formed not for “the acquisition of gain” but to promote art, science, religion, charity or some other useful or philanthropic object, though they may be constituted under the Companies (Consolidation) Act 1908, seldom call themselves companies, but adopt some name more appropriate to express their objects, such as society, club, institute, college or chamber. The joint stock company has had a long history which can only be briefly sketched here. The name of “joint stock company” is—or was—used to distinguish such a company from the “regulated company,” which did not trade on a joint stock but was in the nature of a trade gild, the members of which had a monopoly of foreign trade with particular countries or places (see Adam Smith, Wealth of Nations, bk. v. ch. i. pt. iii.).

The earliest kind of joint stock company is the chartered (see Chartered Companies). The grant of a charter is one of the exclusive privileges of the crown, and the crown has from time to time exercised it in furtherance of trading enterprise. Examples of such grants are the Merchant Adventurers of England, chartered by Richard II. (1390); the East India Co., chartered by Queen Elizabeth (1600); the Bank of England, chartered by William and Mary (1694); the Hudson’s Bay Co.; the Royal African Co.; the notorious South Sea Co.; and in later times the New Zealand Co., the North Borneo Co., and the Royal Niger Co. Chartered companies had, however, several disadvantages. A charter was not easily obtainable. It was costly. The members could not be made personally liable for the debts of the company: and once created—though only for defined objects—such a company was invested with entire independence and could not be kept to the conditions imposed by the grant, which was against public policy. A new form of commercial association was wanted, free from these defects, and it was found in the common law 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 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 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 preamble of the Bubble Act) to “the common grievance, prejudice and inconvenience of His Majesty’s subjects or great numbers of them in trade, 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. Matthew Green, in his poem “The Spleen,” notes how

“Wrecks appear each day, And yet fresh fools are cast away.”

The result was that by the act (6 Geo. I. c. 18) commonly known as the Bubble Act (1719) such companies were declared to be common nuisances and indictable as such. But the act, though it remained on the statute book for more than one hundred years and was not formally repealed till 1825, proved quite ineffectual to check the growth of joint stock enterprise, and the legislature, finding that such companies had to be tolerated, adopted the wiser course of regulating what it could not repress. One great inconvenience of these common law trading companies arose from their being unincorporated. They were formed of large fluctuating bodies of individuals, and a person dealing with them did not know with whom he was contracting or whom he was to sue. This evil the legislature sought to rectify by empowering the crown to grant to companies by letters patent without incorporation the privilege of suing and being sued by a public officer. Ten years afterwards—in 1844—a more important 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 middle of the 19th century by the notorious risks attaching to unlimited liability. In the case of an 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 shareholders of a company. They delegate the management of their business to a board of directors, and they may easily find themselves committed by the fraud or folly of its members to engagements which in the days of unlimited liability meant ruin. Failures like those of Overend and Gurney, and of the Glasgow Bank, caused widespread misery and alarm. It was not until limited liability had been grafted on the stock of the co-operative system that the real potency of the principle of industrial co-operation became apparent. We owe the adoption of the limited liability principle to the clear-sightedness of Lord Sherbrooke—then Mr Robert Lowe—and to the vigorous advocacy of Lord Bramwell. We owe it to Lord Bramwell also that the principle was made a feasible one. The practical difficulty was how to bring home to persons dealing with the company notice that the liability of the shareholders was limited. Lord Bramwell solved the problem by a happy 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 rate of over 4000 a year, the unlimited company has become practically an extinct 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 capital amounts to the stupendous sum of £1,850,000,000 and, what is even more significant, as the 1st Viscount Goschen remarks in his Essays and Addresses, is that “the number of shareholders has grown in a much greater ratio than the 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 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 article mainly deals.

Companies Limited by Shares.—The Companies Act 1862, was intended to constitute a comprehensive code of law applicable to joint stock trading companies for the whole of the United Kingdom. Recognizing the 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 parliament or of letters patent, or is a company engaged in working mines within and subject to the jurisdiction of the Stannaries. Broadly speaking, the meaning of the act is that all commercial undertakings, as distinguished from literary or charitable 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 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 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 mere dummies, clerks or nominees of the seventh affect the validity of the company; so the 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 deed of settlement in the case of other companies. The form of it is Memorandum of Association. given in the schedule to the act, and varies slightly according as the company is limited by shares or guarantee, or is unlimited. (See the 3rd schedule to the Consolidation Act 1908, forms A, B, C, D.) It is required to 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 part of the United Kingdom, whether England, Scotland or Ireland, in which the registered office of the company is proposed to be situate.

3. The objects for which the proposed company is to be established.

4. A 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 intrinsic importance that it has required them to be set out in the 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 sphere of the company’s activities. This principle, which is one of public policy and convenience, and is known as the “ultra vires doctrine,” carries with it important consequences, because every act done or contract made by a company ultra vires, i.e. in excess of its powers, is absolutely null and void. The policy, too, is a sound one. Shareholders contribute their money on the faith that it is to be employed in prosecuting certain objects, and it would be a violation of good faith if the company, i.e. the majority of shareholders, were to be allowed to divert it to something quite different. So strict is the 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 internal management of the company—the terms of the partnership agreed upon by the shareholders among themselves. A model or specimen set of articles known as Table A Articles of Association. 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 Somerset House, together with the following documents:—

1. A list of persons who have consented to be directors of the company (fee stamp 5s.).

2. A statutory declaration by a solicitor of the High 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 duty of 5s. per £100).

4. If no prospectus is to be issued, a company must now (Companies Act 1907, s. 1; Consolidation Act 1908, s. 82) in lieu thereof file with the registrar a statement, in the form prescribed by the 1st schedule to the act, of all the material facts relating to the company. Till this has been done the company cannot allot any shares or debentures.

If these documents are in order the registrar registers the company and issues a certificate of incorporation (see Companies (Consolidation) Act 1908, sect. 82); on registration, the memorandum and articles of association become public documents, and any person may inspect them on payment of a fee of one 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 seal to them.

The total cost of registering a company with a capital of £1000 is about £7; £10,000 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 company is empowered to issue, is what is known as the nominal capital. This nominal capital must be Capital. 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 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 sanction of the court, otherwise reorganize its capital (Companies Act 1907, s. 39; Companies (Consolidation) Act 1908, s. 45), and for this purpose modify its Memorandum of Association; but a limited company cannot reduce its capital either by direct or indirect means without the sanction of the court. The inviolability of the capital is a condition of incorporation—the price of the privilege of trading with limited liability, and by no subterfuge will a company be allowed to evade this cardinal rule of policy, either by paying dividends out of capital, or buying its own shares, or returning money to shareholders. But the 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 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 petition.

A share is an aliquot part of a company’s nominal capital. The amount may be anything from 1s. to £1000. The tendency of late years has been to keep the denomination low, and so to appeal to a wider public. Shares of £100, or Shares. 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 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 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 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 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 balance sheets. Founders’ shares—which originated with private companies—are shares which usually take the whole or half the profits after payment of a dividend of 7 or 10% to the ordinary shareholders. They are much less in favour than they used to be.

The machinery of company formation is generally set in motion by a person known as a promoter. This is a term of business, not law. It means, to use Chief Justice Cockburn’s words, a person “who undertakes to form Promoters and promotion. a company with reference to a given project and to 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, 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 Cairns’s language in Erlanger v. New Sombrero Phosphate Co., 3 A. C. 1236—“have in their hands the creation and moulding of the company. They have the 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 control over the destinies of the company involves correlative obligations towards it, and one of these obligations is that the promoter must not take advantage of the company’s helplessness. A promoter may sell his property to the company, but he must first see that the company is furnished with an independent board of directors to protect its interests and he must make full and fair disclosure of his interest in order that the company may determine whether it will or will not authorize its trustee or agent (for such the promoter in equity is) to make a profit out of the 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 shareholders, 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 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 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 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 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 collusion with the directors, has been the 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’être, 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 fell into 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 place the share capital through the medium of brokers, financial agents and other intermediaries rather than run the risk of incurring, personally, liability under the stringent provisions for disclosure contained in the act (s. 10). 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 therefore rests on those who are responsible for its Prospectus. issue an obligation to act with the most perfect good faith—uberrima fides—and this obligation has been repeatedly emphasized by judges of the highest eminence. (See the observations of Kindersley, V.C., in New Brunswick Railway Co. v. Muggeridge, 1860, 1 Dr. & Sm. 383, and of Lord 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 dates and names of the parties to any contract entered into by the 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 long and elaborate 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 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 personal liability. For false or fraudulent statements—as distinguished from non-disclosure—in a prospectus directors are liable in an action of deceit or under the Directors’ Liability Act 1890, 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 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 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 1900, it was a 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 Allotment of shares. Companies Act 1900 (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 forty days the application moneys must be returned. Any “waiver clause” or contract to waive compliance with the section is to be void.

An allotment of shares made in contravention of these provisions is irregular and voidable at the option of the applicant for shares within one 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 enterprise, 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:—

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 the persons in whom the management of the company’s affairs is vested. But they also contemplate the Meetings. 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 1900—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 stage in the early history of a company. Seven days before it takes place the directors are required to send round to the members a certified 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 particulars 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 calendar year, and not more than fifteen months after the holding of the last preceding general meeting (Companies (Consolidation) Act 1908, s. 64). This 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 vote is given to a shareholder for every share held by him, but more often a 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 default of any regulations, every member has one vote only. Sometimes preference shareholders are given no vote at all. A 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, acceptance and communication of the acceptance to the offerer. The offer in the case of shares is usually in the form of an application in Agreement for shares. 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 letter of allotment is posted to the applicant. Allotment is the usual, but not the only, evidence of acceptance. As soon as the letter of allotment is posted the contract is 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 register of members, and to issue to him a certificate under the seal of the company, evidencing his title to the shares.

The register of members plays an important part in the scheme of the company system, under the Companies Act 1862. The principle of limited liability having been once adopted by the legislature, justice required not only Register of members. that such 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 sole fund available to satisfy their claims—what amount had been called up, what remained uncalled, who were the persons to pay, and in what amounts. These data might materially assist a person dealing with the company in determining, whether he would give it 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 1908, s. 32, to rectify it in a 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 Payment for shares. 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 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 meal or in malt,” and it accordingly became common for shares to be allotted in payment for furniture, 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 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 fix the time and place for payment, otherwise it is 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 of agreement. obtained by the misrepresentation or fraud of its 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 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 estate and may be transferred in the manner provided by the regulations of the company. As Lord Blackburn said, one of the chief objects when joint stock companies Transfer of shares. were established was that the shares should be capable of being easily transferred; but though every shareholder 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 rival company) substituted for a solvent and acceptable one. This power of the directors to refuse a transfer must not, however, be exercised arbitrarily or capriciously. If it were, it would amount to a confiscation of the shares. Directors, for instance, cannot veto a transfer because they disapprove of the purpose for which it is being made (e.g. to multiply votes), if there is no objection to the transferee.

It is a common and convenient practice to deposit share or stock certificates with bankers and others to secure an advance. When this is done the share or stock certificate is usually accompanied by a blank transfer—that is, a transfer Blank transfers. executed by the shareholder borrower, but with a blank left for the name of the transferee. The handing over by the borrower of such blank transfer signed by him is an implied authority to the banker, or other pledgee, if the loan is not paid, to fill in the blank with his name and get himself registered as the owner.

A company can only pay dividends out of profits—which have been defined as the “earnings of a concern after deducting the expenses of earning them.” To pay dividends out of capital is not only ultra vires but illegal, as constituting Dividends. a return of capital to shareholders. Before paying dividends, directors must take reasonable care to secure the preparation of proper balance-sheets and estimates, and must exercise their judgment as business men on the balance-sheets and estimates submitted to them. If they fail to do this, and pay dividends out of capital, they will not be held excused, unless the court should think that they ought to be under the new discretion given to the court by ss. 32-34 of the Companies Act 1907 (Companies (Consolidation) Act 1908, s. 279). The onus is on them to show that the dividends have been paid out of profits. The court as a rule does not interfere with the discretion of directors in the matter of paying dividends, unless they are doing something ultra vires.

By the Companies (Consolidation) Act 1908, ss. 112, 113, incorporating provisions of the act of 1900 (ss. 21-23), as amended by the act of 1907 (s. 19), the legislature has made strict provisions for the appointment and remuneration of Auditors. auditors by a company, and has defined their rights and duties. Prior to the act of 1900 audit clauses, except in the case of banking companies, were left to the articles of association and were not matter of statutory obligation.

The “private company” may best be described as an incorporated partnership. The term is statutorily defined—for the first time—by s. 37 of the Companies Act 1907 (s. 121 of the Consolidating Act of 1908). Individual traders and Private companies. trading firms have in recent years become much more alive to the advantages offered by incorporation. They have discovered that incorporation gives them the protection of limited liability; that it prevents dislocation of a business by the death, bankruptcy or lunacy of any of its members; that it enables a trader to distribute among the members of his family interests in his business on his decease through the medium of shares; that it facilitates borrowing on debentures or debenture stock, and with a view to secure these advantages thousands of traders have converted their businesses into limited companies. To so large an extent has this been done that private companies now form one-third of the whole number of companies registered.

A private company does not appeal to the public to subscribe its capital, but in the main features of its constitution a private company differs little from a public one. It is only in one or two particulars that special provisions are requisite. It is generally desired for instance: (1) to keep all the shares among the members—the partners or the family—and not to let them get into the hands of the public; and (2) to give the principal shareholders, the original partners, a paramount control over the management. For this purpose it is usual to provide specially in the articles that no share shall be transferred to a stranger so long as any member is willing to purchase it at a fair value; that a member desirous of transferring his shares shall give notice to the company; that the company shall offer the shares to the other members; that if within a certain period the company finds a purchaser the shares shall be transferred to him, and that in case of dispute the value shall be settled by arbitration or shall be such a sum as the auditor certifies to be in his opinion the fair value. So in regard to the management it is common to provide that the owner or owners of the business shall be entitled to hold office as directors for a term of years or for life, provided he or they continue to hold a certain number of shares; or an owner is empowered to authorize his executors or trustees whilst holding a certain number of shares to appoint directors. Directors holding office on these special terms are described as “governing” or “permanent” or “life” directors. This union of interest and management in the same persons gives a private company an unquestionable advantage over a public company.

The so-called “one-man company” is merely a variety of the private company. The fact that a company is formed by one man, with the aid of six dummy subscribers, is not in itself (as was at one time supposed) a fraud on the policy of the Companies Act, but it is occasionally used for the purpose of committing a fraud, as where an insolvent trader turns himself into a limited company in order to evade bankruptcy; and it is to an abuse of this kind that the term “one-man company” owes its opprobrious signification.

Companies Limited by Guarantee.—The second class of limited companies are those limited by guarantee, as distinguished from those limited by shares. In the company limited by guarantee each member agrees, in the event of a winding-up, to contribute a certain amount to the assets,—£5, £1 or 10s.—whatever may be the amount of the guarantee. The peculiarity of this form of company is that the interests of the members of a guarantee company are not expressed in any terms of nominal money value like the shares of other companies, a form of constitution designed, as stated by Lord Thring, the draftsman of the Companies Act 1862, to give a superior elasticity to the company. The property of the company simply belongs to the company in certain fractional amounts. This makes it convenient for clubs, syndicates and other associations which do not require the interest of members to be expressed in terms of cash.

Companies not for Gain.—Associations formed to promote commerce, art, science, religion, charity or any other useful object may, with the sanction of the Board of Trade, register under the Companies Act 1862, with limited liability, but without the addition of the word “Limited,” upon proving to the board that it is the intention of the association to apply the profits or income of the association in promoting its objects, and not in payment of dividends to members (C.A. 1867, s. 23). This licence was made revocable by s. 42 of the Companies Act 1907 (Consolidation Act of 1908, ss. 19, 20). In lieu of the word “Company,” the association may adopt as part of its name some such title as chamber, club, college, guild, institute or society. The power given by this section has proved very useful, and many kinds of associations have availed themselves of it, such as medical institutes, law societies, nursing homes, chambers of commerce, clubs, high schools, archaeological, horticultural and philosophical societies. The guarantee form (see supra) is well adapted for associations of this kind intended as they usually are to be supported by annual subscriptions. No such association can hold more than two acres of land without the licence of the Board of Trade.

Cost-Book Mining Companies.—These are in substance mining partnerships. They derive their name from the fact of the partnership agreement, the expenses and receipts of the mine, the names of the shareholders, and any transfers of shares being entered in a “cost-book.” The affairs of the company are managed by an agent known as a “purser,” who from time to time makes calls on the members for the expenses of working. A cost-book company is not bound to register under the Companies Act 1862, but it may do so.

A company once incorporated under the Companies Act 1862 cannot be put an end to except through the machinery of a winding-up, though the name of a company which is commercially defunct may be struck off the register of Winding-up. joint stock companies by the registrar (s. 242 of the Companies (Consolidation) Act 1908, incorporating s. 7 of the act of 1880, as amended by s. 26 of the act of 1900). Winding-up is of two kinds: (1) voluntary winding-up, either purely voluntary or carried on under the supervision of the court; and (2) winding-up by the court. Of these voluntary winding-up is by far the more common. Of the companies that come to an end Voluntary. 90% are so wound up; and this is in accordance with the policy of the legislature, evinced throughout the Companies Acts, that shareholders should manage their own affairs—winding-up being one of such affairs. A voluntary winding-up is carried out by the shareholders passing a special resolution requiring the company to be wound up voluntarily, or an extraordinary resolution (now defined by s. 182 of the Companies (Consolidation) Act 1908) to the effect that it has been proved to the shareholders’ satisfaction that the company cannot, by reason of its liabilities, continue its business, and that it is advisable to wind it up (C.A. 1862, s. 129). The resolution is generally accompanied by the appointment of a liquidator. In a purely voluntary winding-up there is a power given by s. 138 for the company or any contributory to apply to the court in any matter arising in the winding-up, but seemingly by an oversight of the legislature the same right was not given to creditors. This was rectified by the Companies Act 1900, s. 25. Section 27 of the Companies Act 1907 (s. 188 of the Consolidation Act 1908) further provides for the liquidator under a voluntary winding-up summoning a meeting of creditors to determine on the choice of a liquidator. A creditor may also in a proper case obtain an order for continuing the voluntary winding-up under the supervision of the court. Such an order has the advantage of operating as a stay of any actions or executions pending against the company. Except in these respects, the winding-up remains a voluntary one. The court does not actively intervene unless set in motion; but it requires the liquidator to bring his accounts into chambers every quarter, so that it may be informed how the liquidation is proceeding. When the affairs of the company are fully wound up, the liquidator calls a meeting, lays his accounts before the shareholders, and the company is dissolved by operation of law three months after the date of the meeting (C.A. 1862, ss. 142, 143).

Irrespective of voluntary winding-up, the legislature has defined certain events in which a company formed under the Companies Act 1862 may be wound up by the court. These events are: (1) when the company has passed By the court. a resolution requiring the company to be wound up by the court; (2) when the company does not commence its business within a year or suspends it for a year; (3) when the members are reduced to less than seven; (4) when the company is unable to pay its debts, and (5) whenever the court is of opinion that it is just and equitable that the company should be wound up (C.A. 1862, s. 79; s. 129 of the Consolidation Act 1908). A petition for the purpose may be presented either by a creditor, a contributory or the company itself. Where the petition is presented by a creditor who cannot obtain payment of his debt, a winding-up order is ex debito justitiae as against the company or shareholders, but not as against the wishes of a majority of creditors. A winding-up order is not to be refused because the company’s assets are over mortgaged (Companies Act 1907, s. 29; s. 141 of Consolidation Act 1908).

The procedure on the making of a winding-up order is now governed by ss. 7, 8, 9 of the Winding-up Act 1890. The official receiver, as liquidator pro tem., requires a statement of the affairs of the company verified by the directors, and on it reports to the court as to the causes of the company’s failure and whether further inquiry is desirable. If he further reports that in his opinion fraud has been committed in the promotion or formation of the company by a particular person, the court may order such person to be publicly examined.

A liquidator’s duty is to protect, collect, realize and distribute the company’s assets in due course of administration; and for this purpose he advertises for creditors, makes calls on contributories, sues debtors, takes misfeasance proceedings, if necessary, against directors or promoters, and carries on the company’s business—supposing the goodwill to be an asset of value—with a view to selling it as a going concern. He may be assisted, like a trustee in bankruptcy, by a committee of inspection, composed of creditors and contributories.

When the affairs of the company have been completely wound up the court is, by s. 111 of the Companies Act 1862 (s. 127 of the act of 1908), to make an order that the company be dissolved from the date of such order, and the company is dissolved accordingly. A company which has been dissolved may, where necessary, on petition to the court be reinstated on the register (Companies Act 1880, s. 1).

A large number of companies now wind up only to reconstruct. The reasons for a reconstruction are generally either to raise fresh capital, or to get rid of onerous preference shares, or to enlarge the scope of the company’s objects, which Reconstruction. is otherwise impracticable owing to the unalterability of the Memorandum of Association. Reconstructions are carried out in one of three ways: (1) by sale and transfer of the company’s undertaking and assets to a new company, under a power to sell contained in the company’s memorandum of association, or (2) by sale and transfer under s. 161 of the Companies Act 1862; or (3) by a scheme of arrangement, sanctioned by the court, under the Joint Stock Companies Arrangements Act 1870, as amended by the Companies Act 1907, s. 38 (C.A. 1908, s. 192).

The first of these modes is now the most in favour.

A company, though a mere legal abstraction, without mind or will, may, it is now well settled, be liable in damages for malicious prosecution, for nuisance, for fraud, for Wrongs by a company. negligence, for trespass. The sense of the thing is that the “company” is a nomen collectivum for the members. It is they who have put the directors there to carry on their business and they must be answerable, collectively, for what is done negligently, fraudulently or maliciously by their agents.

2. Public Companies.

Besides trading companies there is another large class, exceeding in their number even trading companies, which for shortness may be called public companies, that is to say, companies constituted by special act of parliament for the purpose of constructing and carrying on undertakings of public utility, such as railways, canals, harbours, docks, waterworks, gasworks, bridges, ferries, tramways, drainage, fisheries or hospitals. The objects of such companies nearly always involve an interference with the rights of private persons, often necessitate the commission of a public nuisance, and require therefore the sanction of the legislature. For this purpose a special act has to be obtained. A private bill to authorize the undertaking is introduced before one or other of the Houses of Parliament, considered in committee, and either passed or rejected like a public bill. These parliamentary (private bill) committees are tribunals acknowledging certain rules of policy, taking evidence from witnesses and hearing arguments from professional advocates. In many of these special acts, dealing as they do with a similar subject matter, similar provisions are required, and to avoid repetition and secure uniformity the legislature has passed certain general acts—codes of law for particular subject matters frequently recurring—which can be incorporated by reference in any special act with the necessary modifications. Thus the Companies Clauses Acts 1845, 1863 and 1869 supply the general powers and provisions which are commonly inserted in the constitution of such public company, regulating the distribution of capital, the transfer of shares, payment of calls, borrowing and general meetings. The Lands Clauses Consolidation Act 1845 supplies the machinery for the compulsory taking of land incident to most undertakings of a public character. The Railway Clauses Consolidation Act, the Waterworks Clauses Acts 1847 and 1863, the Gasworks Clauses Act 1847, and the Electric Lighting (Clauses) Act 1899 are other codes of law designed for incorporation in special acts creating companies for the construction of railways or the supply of water, gas or electric light. A distinguishing feature of these companies is that, being sanctioned by the legislature for undertakings of public utility, the policy of the law will not allow them to be broken up or destroyed by creditors. It gives creditors only a charge—by a receiver—on the earnings of the undertaking—the “fruit of the tree.”

3. British Companies Abroad.

The status of British companies trading abroad, so far as Germany, France, Belgium, Greece, Italy and Spain are concerned, is expressly recognized in a series of conventions entered into between those countries and Great Britain. The value of the convention with France has been much impaired by the interpretation put upon the words of it by the court of cassation in La Construction Lim. According to this case the nationality of a company depends not on its place of origin but on where it has its centre of affairs, its principal establishment. The result is that a company registered in Britain under the Companies Acts may be transmuted by a French court into a French company in direct violation of the convention. The convention with Germany, which is in similar terms to that with France, has also been narrowed by judicial construction. The “power of exercising all their rights” given by the convention to British companies has been construed to mean that a British company will be recognized as a corporate body in Germany, but it does not follow from the terms of the convention that any British company may as a matter of course establish a branch and carry on business within the German empire. It must still get permission to trade, permission to hold land. It must register itself in the communal register. It must pay stamp duties.

Foreign companies may found an affiliated company or have a branch establishment in Italy, provided they publish their memorandum and articles and the names of their directors. Where no convention exists the status of an immigrant corporation depends upon international comity, which allows foreign corporations, as it does foreign persons, to sue, to make contracts and hold real estate, in the same way as domestic corporations or citizens; provided the stranger corporation does not offend against the policy of the state in which it seeks to trade.

There is, however, a growing practice now for states to impose by express legislation conditions on foreign corporations coming to do business within their territory. These conditions are mainly directed to securing that the immigrant corporation shall make known its constitution and shall be amenable to the jurisdiction of the courts of the country where it trades. Thus, by the law of Western Australia—to take a typical instance,—a foreign company is not to commence or carry on business until it empowers some person to act as its attorney to sue and be sued and has an office or place of business within the state, to be approved of by the registrar, where all legal proceedings may be served. New Zealand, Manitoba and many other states have adopted similar precautions; and by the Companies Act 1907, s. 35; C.A. 1908, s. 274 foreign companies having a place of business within the United Kingdom are required to file with the registrar of joint stock companies a copy of the company’s charter or memorandum and articles, a list of directors, and the names and addresses of one or more persons authorized to accept service of process. Special conditions of a more stringent nature are often imposed in the case of particular classes of companies of a quasi-public character, such as banking companies, building societies or insurance companies. Regulations of this kind are perfectly legitimate and necessary. They are in truth only an application of the law of vagrancy to corporations, and have their analogy in the restrictions now generally imposed by states on the immigration of aliens.

4. Company Law outside the United Kingdom.

Australia.—Company law in Australia and in New Zealand follows very closely the lines of company legislation in the United Kingdom.

In New South Wales the law is consolidated by Act No. 40 of 1899, amended 1900 and 1906. In Victoria the law is contained in the Acts Nos. 1074 of 1890 and 355 of 1896; in Queensland in a series of Acts—No. 4 of 1863, No. 18 of 1899, No. 10 of 1891, No. 24 of 1892, No. 3 of 1893, No. 19 of 1894 and No. 21 of 1896; in South Australia in No. 56 of 1892, amended by No. 576 of 1893; in Tasmania by Nos. 22 of 1869, 19 of 1895 and 3 of 1896; in Western Australia by No. 8 of 1893, amended 1897 and 1898.

In New Zealand the law was consolidated in 1903.

Canada.—The act governing joint stock companies in Canada is the Companies Act 1902, amended 1904. It empowers the secretary of state by letters patent to grant a charter to any number of persons not less than five for any objects other than railway or telegraph lines, banking or insurance.

Applicants must file an application—analogous to the British memorandum of association—showing certain particulars—the purposes of incorporation, the place of business, the amount of the capital stock, the number of shares and the amount of each, the names and addresses of the applicants, the amount of stock taken by each and the amount and mode of payment. Other provisions may also be embodied. A company cannot commence business until 10% of its authorized capital has been subscribed and paid for. The word “limited” as part of the company’s name is—as in the case of British companies—to be conspicuously exhibited and used in all documents. The directors are not to be less than three or more than fifteen, and must be holders of stock. Directors are jointly and severally liable to the clerks, labourers and servants of the company for six months’ wages. Borrowing powers may be taken by a vote of holders of two-thirds in value of the subscribed stock of the company.

South Africa.—In Cape Colony the law is contained in No. 25 of 1892, amended 1895 and 1906; it follows English law.

In Natal the law is contained in Nos. 10 of 1864, 18 of 1865, 19 of 1893 and 3 of 1896.

In the Orange Free State in Law Ch. 100 and Nos. 2 and 4 of 1892.

For the Transvaal see Nos. 5 of 1874, 6 of 1874, 1 of 1894 and 30 of 1904.

In Rhodesia companies are regulated by the Companies Ordinance 1895—a combination of the Cape Companies Act 1892, and the British Companies Acts 1862-1890.

France.—There are two kinds of limited liability companies in France—the société en commandite and the société anonyme. The société en commandite corresponds in some respects to the British private company or limited partnership, but with this difference, that in the société en commandite the managing partner is under unlimited liability of creditors; the sleeping partner’s liability is limited to the amount of his capital. The French equivalent of the English ordinary joint stock company is the société anonyme. The minimum number of subscribers necessary to form such a company is (as in the case of a British trading company) seven, but, unlike a British company, the société anonyme is not legally constituted unless the whole capital is subscribed and one-fourth of each share paid up. Another precaution unknown to British practice is that assets, not in money, brought into a company are subject to verification of value by a general meeting. The minimum nominal value of shares, where the company’s capital is less than 200,000 fcs., is 25 fcs.; where the capital is more than 200,000 fcs., 100 fcs. The société is governed by articles which appoint the directors, and there is one general meeting held every year. A société anonyme may, since 1902, issue preference shares. The doctrine that a corporation never dies has no place in French law. A société anonyme may come to an end.

Germany.—In Germany the class of companies most nearly corresponding to English companies limited by shares are “share companies” (Aktiengesellschaften) and “commandite companies” with a share capital (Kommanditgesellschaften auf Aktien). Since 1892 a new form of association has come into existence known by the name of partnership with limited liability (Gesellschaften mit beschrankter Haftung), which has largely superseded the commandite company.

In forming this paid-up company certain preliminary The “share company.” steps have to be taken before registration:—

In all cases where shares are issued for any consideration, not being payment in full in cash, or in which contracts for the purchase of property have been entered into, the promoters must sign a declaration in which they must state on what grounds the prices agreed to be given for such property appear to be justified. In the great majority of cases shares are issued in certificates to bearer. The amount of such a share—to bearer—must as a general rule be not less than £50, but registered shares of £10 may be issued. Balance sheets have to be published periodically.

Partnerships with limited liability may be formed by two or more members. The articles of partnership must be signed by all the members, and must contain particulars as to the amount of the capital and of the individual shares. Limited partnerships. If the liability on any shares is not to be satisfied in cash this also must be stated. The capital of a limited partnership must amount to £1000. Shares must be registered. Insolvent companies in Germany are subject to the bankruptcy law in the same manner as natural persons.

For further information see a memorandum on German companies printed in the appendix to the Report of Lord Davey’s Committee on the Amendment of Company Law, pp. 13-26.

Italy.—Commercial companies in Italy are of three kinds:—(1) General partnerships, in which the members are liable for all debts incurred; (2) companies in accomodita, in which some members are liable to an unlimited extent and others within certain limits; (3) joint stock companies, in which the liability is limited to the capital of the company and no member is liable beyond the amount of his holding. None of these companies needs authority from the government for its constitution; all that is needed is a written agreement brought before the public in the ways indicated in the code (Art. 90 et seq.). In joint stock companies the trustees (directors) must give security. They are appointed by a general meeting for a period not exceeding four years (Art. 124). The company is not constituted until the whole of its capital is subscribed, and until three-tenths of the capital at least has been actually paid up. When a company’s capital is diminished by one-third, the trustees must call the members together and consult as to what is to be done.

An ordinary meeting is held once at least every year. Shares may not be made payable “to bearer” until fully paid up (Art. 166). A company may issue debentures if this is agreed to by a certain majority (Art. 172). One-twentieth, at least, of the dividends of the company must be added to the reserve fund, until this has become equal to one-fifth of the company’s capital (Art. 182). Three or five assessors—members or non-members—keep watch over the way in which the company is carried on.

United States.—In the United States the right to create corporations is a sovereign right, and as such is exercisable by the several states of the Union. The law of private corporations must therefore be sought in some fifty collections or groups of statutory and case-made rules. These collections or groups of rules differ in many cases essentially from each other. The acts regulating business corporations generally provide that the persons proposing to form a corporation shall sign and acknowledge an instrument called the articles of association, setting forth the name of the corporation, the object for which it is to be formed, the principal place of business, the amount of its capital stock, and the number of shares into which it is to be divided, and the duration of its corporate existence. These articles are filed in the office of the secretary of state or in designated courts of record, and a certificate is then issued reciting that the provisions of the act have been complied with, and thereupon the incorporators are vested with corporate existence and the general powers incident thereto. This certificate is the charter of the corporation. The power to make bylaws is usually vested in the stockholders, but it may be conferred by the certificate on the directors. Stockholders remain liable until their subscriptions are fully paid. Nothing but money is considered payment of capital stock except where property is purchased. Directors must usually be stockholders.

The right of a state to forfeit a corporation’s charter for misuser or non-user of its franchises is an implied term of the grant of incorporation. Corporations are liable for every wrong they commit, and in such cases cannot set up by way of protection the doctrine of ultra vires.

---