COMPANY LAW.

Hawera Star, Volume XLVIII, 8 November 1924, Page 12

COMPANY LAW.

SOME OF ITS ASPECTS. (By Mr. J. S. Barton, S.M.) The following is a summary 0 f the lecture on the above subject delivered in Hawera by Mr. J. S. Barton, S.M., on Wednesday, November 5, under the auspices of the Hawera Accountant Students’ Society:

In directing my remarks to students and the average man in business principally, I am aware that the first acquaintance such a man often gets with law is obtained by the study of some special statute such as the Companies Act for the purpose of examinations. All law relating to companies is not contained in the Companies Act. Apropos to this I received a letter from a Southland company secretary stating that he had been through the Act from end to end and had been unable to find the clause prohibiting a company from buying its own shares. Although a company cannot buy its own shares the Act does not say so, and the rule will be found in a judgment which forms part of the case law dealing with the Act.

Much that is in the Companies Act is unintelligible unless the student knows something of the history of the subject and the principles of the law' of corporations. Companies, as we know them, are a part of the process of development of corporations, which has been going on since th© times of the Tudora at least., A company under the Companies Act is a particular kind of corporation—a legal entity, a something that can sue and be sued. It is deemed to have an existence apart from the person or persons associated with ’t. There are two classes of corporations : Corporations sole and corporations aggregate. Each is a legal con-, ception with a person or persons to drape the conception upou. Corporations arise in various ways—by common law (now limited by the Companies Act as to numbers), by Royal charter and letters patent, by' authority of Parliament in (a) special Acts (i.e.. Bank of New Zealand, and Wellington Harbour Board) and (fy general Acts (e.g., Companies Act, 1908, and Municipal Corporations Act); also by prescription. An historic example is ‘‘The Company or Fraternity of* Free Fishermen and Dredgermen of Faversham in the County of Kent.” This corporation, has been in existence since time immemorial as a body of fishermen. and their constitution was recognised as a corporation by an Act of 1840.

Examples of corporations sole may be stated thus: In England, the King, Archbishop of Canterbury, the Bishops of the Established Church; in New' Zealand, the Public Trustee. Examples of corporations aggregate are the Bank of New Zealand j the borough of Hawera. It is necessary to grasp the idea of an entity as distinct from the persons forming the membership of a company. ‘--'.This is evidenced by the contractual powers of a company itself quite apart from its individual members, and the continuity of. the company whether its members die or not. The. members of the company may change, and will oontinually change as the company goes on, but the company as a legal entity continues. - The Bank of England may be used as an example of the first of the joint stock companies. It was founded in 1694 under a Special Act. Royal charters were issued to corporations organised for some specific purpose, and most of the great colonising work of our Empire has been done by corporations working under Royal cliarters, such as fhe East India Company, the Hudson Bay Company, and the New Zealand Company. Then companies have been promoted under the powers of common law, to avoid th© expense that attached to the obtaining of a Royal charter

At the beginning of the process of formation of companies abuses crept in, and the great exemplar is the South Sea Eubble, 1719-1720, and the evils were of such extent that a special Act. entit’ed the Bubble Act, was nassed in .1720, which discouraged the practices of company promoters and went f ar to discourage and discredit the whole scheme of joint stock enterprise. Palmer in his text book thus refers to some of the incidents relating to companies of the Bubble period: “The law at first frowned on these new associations. It questioned their validity. It insisted on treating them as ordinary partnerships, and by the drastic rules which it applied it seriously checked and crippled their decelopment. They continued to .be formed, however, and gradually the need increased till the fraudulent promoters appeared on the scene. ” In 1806 a test case settled doubts that had arisen, and established that the law w»s that joint stock companies and the association of business men in joint stock enterprises were not per se illegal, but only became so when they were formed and managed with the ulterior object of defrauding less sophisticated subjects of his Majesty. JSrom the repeal of the Bubble Act in 1820 until about 1844 the popularity of the joint stock idea was considerably revived. There was no Companies Act, but business men, in the exercise of their common law rights, formed companies, the rights of members and the consequent constitution of such companies being the subject of special contracts in each case. By 1844 the undoubted advantages of this form of business enterprise, particularly its facilities for collecting capital" and guiding it into useful channels, were fully recognised, although the common law companies laboured under two great disadvantages. One was that the members could not secure limitation of their liabilities as members, and the other was that it was difficult, if not impossible, to tie such a common law corporation down to some defined scope of operations.

In 1844 the first Companies Act was passed. It definitely recognised and sanctioned the joint stock company idea. Further, it required companies to register at a central office, and to make the details of their financial arrangements and constitutions public knowledge. In return the law bestowed the great advantage of limited liability. On that Act of 1844 all the subsequent Imperial ancl Colonial Companies Acts were based. The speaker then dealt fairly fully with two early leading cases by which the courts engrafted on to the statutory provisions two bedrock principles, which stand unmoved to-day. They are: (1) That a company registered under the Companies Act is a creature of that statute and has no power to 'Jo things other than tlio.se things that it is empowered to do bv its memorandum of association; and (2) that a company after regi.storing the amount of its capital cannot diminish that amount by subsequently purchasing its shares from its members Those* propositions mav seem to 1924 students to be self-evident platitudes; but they emerged out of the mists of much doubt and -were established only after, bv a series of appeals, they liarl been, carried to the highest legal tribunal in the Empire.