Agreemene for Sale.—The next step will be to prepare an agreement for the sale of the business to the company. The agreement will follow the form set out in illustration of this article. It will be noticed in particular that the owner, whom we have therein called John Bull, agrees to sell the business to one John Smith, who enters into the agreement on his part solely as a trustee for the intended company—as, in fact, a conduit pipe for the conveyance of the business to the company when formed—and consequently is not supposed or expected to incur any personal obligation in the matter. John Smith is therefore merely a nominal purchaser, and it is not only convenient but very usual to find him amcng the clerks or other dependants of the vendor. The agreement recites, amongst other things, that the nominal capital of the company is to be £10,000, divided into 10,000 shares of £1 each, and that the price to be paid for the business is £8500, payable in fully-paid shares to that amount. It is advisable for the agreement to specify the number of the shares it is intended to allot to the vendor in satisfaction of the purchase price, also to fix an early convenient date for the completion of the purchase. This latter Tv.-7.41, only be about a week ahead, so long as sufficient time is given for filing the agreement and registering the company in the meantime. Nor should the agreement fail to provide for the discharge of John Smith from any liability thereunder, %r to provide for its being filed within one month after allotment.
It is most essential that the agreement should be filed within one month after allotment of the shares. To allot fully paid shares without so filing the agreement therefor would be to hand shares over to the vendor for which he might be Liable in cash to the amount of their face value, notwithstanding the fact that they are expressed to be fully paid, and have been allotted for a good consideration. Any future transfercee of these shapes would also hold them subject to the same liability if, when lie took them, he knew the agree ment relating to them had not been filed ; but any bondlide purchaser thereof who had no such knowledge would hold the shares as fully paid up and with out any liability, and so would any further transferee of those shares who derived his title thereto through the above-mentioned bond fide purchaser, even though such further transferee himself knew of the non-filling of the agreement.
The allottee of fully-paid shares should himself see that the agreement is duly filed, but as the duty should lie primarily upon the company, it will be wise to notice this duty in the agreement itself. If the allottee finds that the company has omitted to file the agreement, he may proceed to have the omission supplied by either of two means. One method is to apply to the company to cancel his shares and strike his name in respect thereof out of the share register, with a view to subsequently filing the agreement and allotting him a new set of shares in lieu of those cancelled. This the
company may lawfully do, but it is necessary that the whole of the details of the cancellation and re-allotment, and of all the proceedings incieiental thereto, are clearly and fully set out in the minute-book of the company ; it would be the best plan for the allottee's letter of request to be pasted in the minute-book, and the directors' resolution thereon to recite in detail all the facts leading up thereto. Such an allottee has, however, other means of rectification open to him ; he may apply to the Court setting out all the facts, and the Court, if satisfied as to the justice of the application, and as to the solvency of the company, will order the share register of the company to be rectified by striking out the name of the allottee with a view to the agreement being filed and the shares reissued.
Memorandum and Articics.—The above having been duly executed, it remains to prepare the Memorandum and Articles of Association. Each of these documents are discussed in separate articles, and it will be sufficient here to refer to a few points in their relation to a private company such as the one we are assuming to be in process of formation. Since the acquisition of the business by the intended company is the real object of the latter's existence, it follows that a first place must be given to that object when constituting the company. Accordingly, the Memorandum of Association should provide that acquisition as its first object. It should do this in the terms of Clause 3 (a) of the memorandum set out at the end of this article ; and it will be in this that our memorandum mainly differs from that of a public company. In the latter case the directors have a much wider dis cretion whether they will or not purchase a business which the company has been floated to acquire. In the case of a private company it is not intended that they shall have any discretion whatsoever in this respect. Apart from this pobst the memorandum does not require further aireassion in this article.
In the case of the Articles of Association there is need for a greater in preparing it for a private 1.7 ompanv. It may, for example, be thought desirable to restrict the free transfer of shares, so as to prevent the introduction of undesirable shareholders or to confer upon the share holders a right to the first offer of any shares of which a member may desire' to dispose ; or to provide that only persons approved by the directors may be permitted to hold shares. Again, where employees are allowed to hold shares as a condition for office in the company, and one retires, or misconducts himself so that it is necessary to discharge him, it may be expedient to have an article which gives the directors power to demand the sale to them of his shares at an agreed price. So, too, shareholders may be restrained from entering into a business in competition with the company, or even from doing so within a certain time from their having retired from membership.