If the company meets with financial disaster it may be wound up, and he individually will escape the odium and inconvenient personal results of bankruptcy. Does the company require further capital, it may be obtained by debentures duly registered. Again, by turning his business into a com pany the busintss has become in itself a legal person subject to but few of the contingencies usually attendant upon the natural person ; it can live as long as desired by the persons from time to time interested in it. Had it been an ordinary partnership, the death of a partner would have necessitated new arrangements of capital and partnership. Moreover, the shares of the company may be freely dealt with by way of sale, mortgage, or otherwise- partners cannot sell or mortgage their shares in a partnership. So also, shares in the company may be disposed of by will.
The Formation of a Company.—It would be of very little practical use to the general reader to set forth here the methods of flotation of a com pany as adopted by the professional company promoter when he desires to obtain for his venture the financial support of the general public. For one thing, the chief function of the promoter is to obtain capital by means of a public issue, while a private company is prohibited from inning the public to subscribe. It will, on the other hand, be of some interest to show how a com pany may be formed under certain circumstances which may arise at any time in the ordinary course of an average business career. There are two of such circumstances that may be profitably referred to. The first is where a business, already a going concern, is about to be turned into`a limited com pany, the actual proprietary remaining the same. The second is where a limited company is to be formed, having capital provided for it by several persons upon terms already agreed, and which company is intended to take over either an already existing business, or to create and develop a new busi ness altogether. Until recently all limited companies were, strictly speaking, public companies. Now the class of " private " company has been introduced, and into a company of such class the business now to be considered can most conveniently be transformed. A private company is essentially one which does not issue a prospectus. Though the formation of all companies—both public and private—follows practically the same lines, there are certain additional incidents in the promotion of a public company. These, however, need not detain us in this article, but reference may be made to such other articles as PROSPECTUS and UNDERWRITING.
A Private Company is one which by its articles (a) restricts the right to transfer its shares ; (b) limits the number of its members (exclusive of persons who are in the employment of the company) to fifty ; and (c) prohibits any invitation to the public to subscribe for any shares or debentures of the company. Moreover, a private company need not obtain a certificate entitling it to commence business, or file a balance-sheet, or forward and file a report for the statutory meeting, or disclose the auditor's balance-sheets and reports to preference shareholders or debenture holders. It may pay a commission for
subscribing or underwriting its shares. Let it be assumed that the business intended to be transferred to a company is an already existent and working printing and publishing establishment owned entirely by one person ; and the is to be called "The John Bull Printing and Isuisliebing Company, Limited." The first thing to be done by the owner will be to prepare a com plete balance-sheet of the business. This having been done, attention should be 'paid to the two very important items—a) total net assets, not including goodwill as such ; and (b) net annual profit. Let (a) be £5000, and (b) £1000. With these two items before him, the owner may approach the very important question of the capital of the intended company ; and he must be careful, on the one hand, not to saddle the company with too heavy a capital, and on the other hand not to depreciate the value of his business by making it too small. The 'nominal capital should be fixed at such a sum as will leave a margin of unissued shares after acquiring the business, which will be avail able for issue in the future if deemed expedient. The part of the nominal capital actually issued should be limited to such a sum as will make the dividends payable thereon reasonable and satisfactory to any one who may in course of time become, by purchase, a shareholder. For the shares to yield 10 per cent. would be very reasonable from all points of view ; and perhaps he will be wise if, having regard to the nature of the business, he fixes the nominal capital and the part thereof to be issued relatively to such a desired result. But he must first make provision for the expense. of a general but occasional supervision of the business, such as directors generally give. As he himself is at present the sole owner, and so will take all the profits, he might fix the total directors' fees at £150 per annum, which would allow for supervision by others when he himself has retired. The net profit available for dividend will stand, therefore, at £850, which capitalised at 10 per cent. shows £8500. This latter figure can, therefore, be reasonably fixed as the amount of the part of the capital to be actually issued ; and the busi ness can be valued thereat, namely, £5000 for plant, stock, and other assets, and £3500 for goodwill. The nominal capital could be fixed at R10,000, which will leave a margin of £1500 for further issue. In the estimate we have just made it is assumed that there will be sufficient floating cash, or realisable assets, in the business as transferred to the company, to provide for working capital. If further working capital is needed, it may be obtained by issuing the unissued shares, or upon debentures; the latter plan will give security to the person who finds the further capital.