COMPANIES : THEIR FORMATION AND companies with which it is proposed to deal in this article are those formerly formed under the Companies Acts, 1862 to 1900, of which statutes the Act of 1862 was the chief, and those now formed under the repealing and consolidat ing Act of 1908. It is unlawful to trade in co-partnership tt here the lumber of the partners exceeds twenty (or ten for a banking company); unless the co-partnership is registered under the Act. A co-partnership so registered may, under the provisions of the Companies Act, be unlimited in its liability, or its liability may be limited either (a) by its shares, or (b) by guarantee ; but, in no case where the company is a public one, may its partners or members be less in number than seven. A company may also be registered with the liability of its directors unlimited. W here the company to be formed will be a " private" company it may consist of only two or more members. There is no restriction or regulation as to the minimum propor tion of shares which may be held by each member, the consequence being that a public company may be registered and will be valid which has its capital divided into, say 500,000 shares, of which six are held by the same number of persons and the remaining 499,994 are held by one member alone. And it isti'very necessary that the number of members company should never at any time be allowed to go below seven, even if a share apiece has to be given to a few nominees or depsndants for the sole purpose of keeping up the statutory number. To go below the number is to give power to the registrar to strike the company off the register as defunct. Moreover, should such a company carry on business when the number of its members is less than seven for a period of six months after the number has been so reduced, each person who is a member of the company during the time that it so carries on business after the period of six months, and is cognisant of the fact that it is so carrying on business with fewer than seven members, will be personally liable for the payment of the whole debts of the company contracted during such time, and may be sued for the same, without any other member of the company being joined in the action. Two members are sufficient for a private company.
Limited is little practical value in staying to discuss the merits of a registration with unlimited liability ; the real interest of the public centres in companies having their liability limited. As above mentioned, there are two forms of limited liability—that by guarantee, and that by shares. The former of these two exists where, the capital not being divided into shares, its members instead guarantee certain proportions thereof. A company limited
by guarantee is seldom to be found amongst business companies, except amongst such as are of a mutual character, as e.g. mutual insurance societies. In fact the method of limitation of liability by guarantee is of little value to a trad ing company requiring the usual facilities for credit, and it is accordingly adopted by those companies, or rather societies, such as chambers of commerce and law societies, which require little or no credit, and have not the primary object of making profit for their members. All limited companies, whether public or private, or whether by guarantee or by shares, must affix at the end of their title the word " limited," and always use it, or an easily understood abbreviation. Any notice or other act of a company omitting this word " limited " is invalid, and may lead to serious consequences. But the Board of Trade has power, where a company is not formed for the purpose of profit but for the advancement of some object of general public utility, to permit it to omit the affix " limited " from its title. The word "limited" may not be used by a company or firm not so registered.
The advantages offered to the trader by the system of limited liability are many and obvious. It is true that the arm-chair critic may, as the result of a superficial consideration of them, object that for the most part they afford an opportunity for the individual to sink his identity in that of a mere abstraction, and thereby to escape his proper personal liabilities. Whether this be so or not, it is sufficient that the law stands as it does ; and notwithstanding any occasional opportunities it may offer for " immoral " commercial enterprise, the system of limited liability at the same time affbrds, on the whole, undoubted and most necessary advantages and facilities to trade and commerce generally. The law is aware of this, and accordingly the system is maintained to-day on practically the same principles as it was introduced in 1862. To properly appreciate the advantages of "limited liability," the business man must not overlook the fact that a "one-man company," as it is called, as legal a form of company as any other. The one-man element may legally extend to such a length that in the above mentioned suri:asiticious company with half a million capital, the owner of the 499,994 shares may even heve the remaining six shares in his own pos session and power as pledges or otherwise. And the recently introduced " private " company only strengthens the position of the one-man. company.