There are various kinds of companies, or societies in the nature of companies—some created by Royal Charter, others incorporated, or registered under special Acts of Parliament, such as building, industrial and provident societies. There are also unincorporated companies, some having been formed under letters patent from the Crown, friendly societies, trade unions, literary and scientific societies, loan societies and others, such as clubs and charitable institutions. Railway or dock companies are generally formed under special Acts of Parliament, and the Companies’ Clauses Act, containing regulations for such undertakings.
The majority of companies, however, are joint Stock Companies, incorporated by registration under the general Acts of Parliament known as the Companies’ Acts. These may be limited (by shares, or guarantee) or unlimited.
There may be ‘private companies’, and amongst these, what are known as’ ‘one man’’ companies. The ordinary company must consist of at least seven persons, who sign a document called a Memorandum of Association. Each of them must take at least one share, and write, opposite his signature, the number taken by him. Each signature must be witnessed.
The Memorandum of Association, which requires a 10s. stamp (impressed), must state the name of the company, place of registered office, the objects of the company, whether the liability of the members is limited, and the amount of the capital. A member of the company, limited by shares, is not liable for the debts of the company, but only for the unpaid amount (if any) on the shares taken by him. For example, if a member of a limited company holds twenty shares of £5 each, on which a sum of I.40, being £2 per share, has been paid, his liability is limited to a further sixty pounds, which may be called up when required for the business of the company.
A member of a company, limited by guarantee, is liable only for the amount guaranteed by him.
If the company is not limited, a shareholder therein is liable for the debts of the company, in the event of it being wound up, and the assets being insufficient for the payment of the debts. Each shareholder will, in the event of winding-up, be called on to contribute his share of the debts (if the assets are insufficient to meet them), in proportion to the amount of his holding. But some of the shareholders may have to pay more than their proportions, in order to make up the proportions of others who have no means of paying their liabilities. Thus prudent investors generally avoid purchasing shares in unlimited companies.
The name of a company to be registered must not be the same as any other already existing, nor may it be so similar as to mislead.
In addition to the necessary Memorandum of Association, another document called ‘Articles of Association’ is required to be registered, in respect of every unlimited company, and every company limited by guarantee. A company limited by shares may have articles of association, in which event they will take effect, subject to the articles contained in table A at the end of the Companies’ Act, 1908, which articles will also apply to all limited companies which do not register any. All articles of association to be registered require a 10s. stamp, and are to be divided into paragraphs, and printed, and signed and witnessed, as already directed in respect of the memorandum of association. A company may not carry on any business, or undertaking, other than those specified in its memorandum of association, which, once registered, cannot be altered without leave of the Court.
Articles of Association are to contain regulations for the conduct of the company’s affairs, which may be varied by special resolution of the shareholders. General regulations are contained in table A above referred to.
On registration of a company, notice must be given to the Registrar, of the situation of its registered office, to whom any change of address must be notified. The name of the company must appear on the building where the registered office is situate.
It is important that the word ‘limited’ should always be used at the end of the name of a limited liability company ; if omitted, the directors may be held personally responsible for its debts.
When a company has been duly registered, and the duty—a percentage according to the amount of the nominal capital—has been paid, a certificate of incorporation is issued by the Registrar.
A list of the shareholders must be kept at the registered office of the company.
Generally a prospectus is issued, inviting the public to take shares. One desiring to invest in the shares should not rely on the statements therein contained, but should examine the memorandum and articles of association, and ascertain whether they agree with the particulars set forth in the prospectus. The persons responsible for the issue of a prospectus, including directors and promoters, may be required to compensate persons relying on statements therein, unless it can be shown that such statements were bona fide, made on the authority of experts, &c.
The business affairs of a company are managed by the board of directors with the assistance of the secretary.
The usual qualifications of a director is the holding of a number of shares as fixed in the articles.
An ordinary meeting of shareholders must be held once in every year, and the first within three months after its incorporation.
Annual returns as to the affairs of the company, including the balance sheet, must be made to the Registrar, but this is not necessary with regard to a private company.
Every company has a common seal, which must have the registered name of the company on it. The articles of association generally make regulations as to the use of the seal, but whenever this is affixed to a contract, a deed stamp is necessary. However, a contract for which no seal would be necessary if made by individuals may be signed on behalf of the company, by any person acting under the authority of the company.
Mortgages and other charges, including those for securing debentures, require registration within twenty-one days, at the office of the Registrar.
A company may be wound up, (a) when it was created for a limited period which has expired; (b) when under articles of association, provision has been made for winding-up, on the happening of certain events which have occurred! (c) on a special resolution for that purpose being passed ; (d) on an extraordinary resolution that the company cannot, by reason of its liabilities, continue business.
For winding up a company, a liquidator is appointed to realise the assets and distribute the proceeds, according to the provisions of the Companies’ Acts. A company may also be wound up and a liquidator appointed by an order from the Court on various grounds. Such an order may be obtained by a creditor who cannot obtain payments due.
A private company may be formed by two or more persons who subscribe their names to a memorandum of association. The number of members is limited to fifty, exclusive of persons in the employment of the company. The articles of association must, among other provisions, restrict the right of transferring shares, and prohibit any invitation to the public to subscribe for capital. Therefore a private company does not issue a prospectus, but it may be converted into a public company by filing at the office of the Registrar a statement in lieu of a prospectus.
In the absence of fraud, a properly constituted and registered company, the control of which is practically in the hands of one person, but having at least two members, is legal.
Many partnerships and sole individual undertakings, have been converted into private limited companies, and in some cases all the shares are held by one family. Most of the regulations relating to ordinary limited companies apply also to private companies.
Neglect of a private company to comply with its articles may cause forfeiture of its privileges.