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COMPANY

instance, it is commonly prescribed how and when the directors may make calls, to what amount they may borrow, in what circumstances they may forfeit shares, or veto transfers, or invest funds, and what shall constitute a quorum of the board. Whenever, indeed, specific directions are desirable they may properly be given by the articles. But superadded to and supplementing these specific powers there is usually inserted in the articles a general power of management in terms similar to those of Clause 58 of the statutory regulations known as Table A. The powTers, whether general or specific, thus confided to directors are in the nature of a trust, and the directors must exercise them with a single eye to the benefit of the company. It would, however, give a very erroneous idea of their positions and functions to speak of them as trustees. They have to carry on the company’s business, which is the aggregate amount agreed to be paid by to extend and consolidate it, and to do this they must those who have taken shares in the company. Under have a free hand and a large discretion to deal with the the Companies Act, 1900, a “minimum subscrip- exigencies of the commercial situation. This large discretion ” may be fixed by the articles, and if it is, the tion the law allows them, so long as they keep within the directors cannot go to allotment on less: if it is limits set by the company’s Memorandum and Articles. not, then the whole of the capital offered for subscrip- They are not to be held liable for mere errors of judgment, tion must be subscribed. A company may increase still less for being defrauded. That would make their its capital, consolidate it, subdivide it into shares of position intolerable. All that the law requires of them is smaller amount, or convert paid-up shares into stock, and that they should be faithful to their duties as agents— for this purpose modify its Memorandum of Association; “honest and diligent.” They must not, for instance, but a limited company cannot reduce its capital either by delegate their duties, or accept a bribe, or make a secret direct or indirect means without the sanction of the Court. profit, or pay dividends out of capital, or misapply the The inviolability of the capital is a condition of incorpora- company’s funds. Where in these or in any other ways directors are tion—the price of the privilege of trading with limited liability, and by no subterfuge will a company be allowed guilty of misfeasance or breach of trust in regard to to evade this cardinal rule of policy, either by paying the company or its property, the remedy of Misfeas. dividends out of capital, or buying its own shares,. or the company, if it is a going concern, is by anco returning money to shareholders. But the prohibition action against the delinquent; but where a against reduction means that the capital must not be company is being wound up, the Legislature has proreduced by the voluntary act of the company, not that a vided a summary mode of proceeding under the Windingcompany’s capital must be kept intact. It is embarked up Act, 1890, by which the official receiver or liquidator, in the company’s business, and it must run the risks of or any creditor or contributory of the company may such business. If part of it is lost there is no obligation take out what is known as a misfeasance summons, to on the company to replace it and to cease paying dividends compel the delinquent director or officer to repay the until such lost capital is repaid. The company may in misapplied moneys or make compensation. Directors who such a case—and no course can be more beneficial to it— circulate a prospectus containing statements which they write off the lost capital and go on trading with the re- know to be false, with intent to induce any person to duced amount. But for this purpose the sanction of the become a shareholder, may be prosecuted under § 84 of the Larceny Act, 1861. They are also liable criminally for Court must be obtained by petition. A company being a legal abstraction, invisible and falsification of the company’s books, and for this or any intangible, can do nothing in its own person. It must other criminal offence the Court in winding-up may, on the act through agents. These agents are com- application of the liquidator, direct a prosecution. Directors. monly caned directors, though they are occaA share is an aliquot part of a company’s nominal capital. The amount may be anything from Is. to £1000. sionally described by other names, such as committee men, council, or managers. The first directors of a com- The tendency of late years has been to keep the Shares. pany are generally appointed by the Articles of Association. denomination low, and so to appeal to a wider Their consent to act must now, under the Companies public. Shares of £100, or even £10, are now the exAct, 1900, be filed with the Kegistrar of Joint Stock ception. The most common amount is either £1 or £5. Companies. Directors other than the first are elected at Shares are of various kinds,—ordinary, preference, dethe annual general meeting, a certain proportion of the ferred, founders’, and management. Into what classes acting directors—usually one-third—retiring under the of shares the original capital of the company shall be articles by rotation each year, and their places being filled divided, what shall be the amount of each class, and their up by election. A share qualification is often required, respective rights, privileges, and priorities, are matters for on the well-recognized principle that a substantial stake in the consideration of the promoters of the company, and the undertaking is the best guarantee of fidelity to the must depend on its special circumstances and requirements. A company may issue preference shares even if there is company’s interests. A director once appointed cannot be removed during his term of office by the shareholders, no mention of them in the Memorandum of Association, unless there is a special provision for that purpose in the but it is, as a rule, desirable that the Memorandum define Articles of Association; but a company may dismiss a the rights of preference shareholders, as their rights cannot director if the articles—as is usually the case—authorize then be altered or infringed. The preference given may dismissal. The authority and powers of directors are be as to dividends only, or as to dividends and capital. primd facie those necessary for carrying on the ordinary The dividend, again, may be payable out of the year’s business of the company, but as a rule they are more profits only, or cumulative. The question for the company particularly defined by the Articles of Association. For is, what must be offered to attract investors. Founders’

panics, who is to retain and register them. The stamp duty charged on the company’s capital must at the same time be paid. The Memorandum and Articles of Association thereupon 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 capital which is required to be stated in the Memorandum of Association is what is known as the capital. This nominal capital must Capital. jnominal
 * )e distinguished from the subscribed capital,