The legislature has on different occasions interposed to regulate the principles of joint-stock companies, and protect the public against the injuries which they may recklessly inflict. The safest undertakings are those of a public nature, and which are therefore incorporated by special act of parliament, for besides that their rules have been scrutinized by committees of the commons and lords in terms of certain standing orders, the liability of shareholders is limited expressly to the amount of their respective stocks. Railway companies are of this category. Where there is no such limitation by statute, any single shareholder incurs a responsibility equal to the whole debts of the concern, and he can seek relief only against his brother shareholders conjointly or severally. The appalling nature of this responsibility, and the necessity for as far as i possible averting it, have induced the legislature to empower the organization of com panies on a method of limited responsibility ; in this respect copying a plan which had worked successfully in the United States. To participate in the benefit of this limita tion, companies need to be publicly registered according to certain statutory obliga tions, by which means all have an opportunity of judging of their character. We add a brief analysis of the laws affecting joint-stock companies without and with limited liability.
Numerous statutes have been passed during the last 30 years in, England, Scotland and Ireland, to regulate the constitution and proceedings of joint-stock companies, and there were separate statutes for each kingdom, and also for different kinds of companies in each kingdom. The principle of limited liability was first introduced in 1856. All these separate statutes, which led to much confusion, have been now repealed, and replaced by one consolidated statute, called the companies' act, 1862, 25 and 26 Vict. c. 89, which, amended by 30 and 31 Viet. c. 131, constitutes the code of joint-stock com panies now applicable to the United Kingdom. This general act contains provisions for enabling existing companies previously registered to register themselves under the new act. The same formalities are made applicable, with slight variations, to all joint stock companies, whether limited or unlimited. The grand distinction between limited and unlimited companies is that whereas, formerly, if a company contracted debts, no. matter how large, every member was liable, if his co-members proved to be unable to pay their proportions, to pay the whole of these debts, even to the last shilling of his fortune—a result which proved ruinous to the rich members; now, on the other hand, if the company is limited, though it contract debts however large, yet each member can ix no event be called on to pay more than he expressly guaranteed; thus be knows at the outset the worst that can befall him. Hence it follows that if a limited company contract excessive debts beyond what the members are bound to pay, it is the creditors alone who will chiefly suffer; but they have such ample means of satisfying themselves beforehand about the position and capabilities of the company, by reason of the publicity and access to books now provided, that they can only blame themselves if they credu lously give too large credit.
It may he also noticed, before stating the details more particularly, that no partner ship of bankers which consists of more than ten persons shall be formed in future, unless it is registered and conducts its business under the companies' act, 1862; and other partnerships consisting of more than 20 persons, are in like manner compelled to register as a company, unless they are already registered, or are formed by some act of parliarnent or letters patent.
The subject will be most conveniently noticed under certain heads.
1. Constitution and Incorporation of Companies and seven or more persons associated for any lawful purpose may subscribe a memorandum of association, and may define their liability as follows. They may limit their liability either to the amount, if any, unpaid on their shares, or to such amount as they may respectively undertake to contribute to the assets of the company, in the event of its being wound up. If the liability is limited by shares, then the word "limited" must be added to the name of the company; and the amount of capital, object, place of business, and declara tion of the limit, must be defined in the memorandum of association. If the liability is limited by guarantee the word "limited" must also be added, and the amount of guar antee defined, so as to extend to all liabilities incurred while the party is a member, and within one year after. If the company is formed on the principle of no limit being placed on the liability of its members, the declaration of any limit is omitted, and it is called an unlimited company. The memorandum of association is to be stamped and :signed by each subscriber in presence of one witness, and when registered, it binds the -company and members.. A company in general cannot alter this memorandum of asso ciation, unless where it is a company limited by shares, and wishes to increase its capital or shares. A limited company may, however, gave directors and managers and man aging director with unlimited liability. Besides the memorandum of association, there must be articles of association, also signed by the subscribers, stating the rules of the company; or if the company is limited by shares, and has no such articles, then the rules stated in schedule A to the act occupy their place. The articles of association must be printed. The memorandum and articles must be delivered to the registrar of joint-stock companies, who shall register the same, and grant a certificate of incorporation. Each member is entitled, on request, and payment of 1s., to have forwarded to him a copy of the memorandum and articles of association, otherwise the company forfeits a penalty of £1 in each case. Companies are prohibited from adopting the same name as another company, and in some cases they cannot, without leave of the board of trade, hold more than 2 acres of land.