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Form 96.

Managing director.

1. The first managing director of the company shall be A., of who shall hold that office until the ordinary meeting in the year at a salary of £ per annum, payable at such times as may be agreed upon between him and the directors.

2. The said A., during his term of such office, shall devote the whole of his time and attention to the business of the company, and shall not directly or indirectly engage or be concerned in any other trade or business without the consent of the directors.

3. Upon any vacancy occurring in the said office, the directors may either fill up the office by the appointment of some one of their body thereto, or may at their discretion discontinue the same.

4. Subject to the provision in Clause 1 hereof contained as to the remuneration of the said A., the remuneration of the managing director (if any), for the time being, shall be fixed by the directors, and may be, by way of salary or commission, or participation in the profits, or by any or all of those modes.

5. The directors may, from time to time, entrust (see supra, p. 126).

not to be

Form 97. No purchase, sale, contract, or agreement, made or entered into by Acts assente d the directors, or act done by the directors, to which the assent of the to by company company in general meeting shall be given, shall be afterwards impeached or objected to by reason that the same is not within or is opposed to the business and objects of the company, or that a dissolution of the company may be thereby rendered necessary, or on any other ground whatsoever.

impeached as ultra vires.

A clause to the above effect is sometimes inserted. See Marshall v. Glamorgan Iron and Coal Co., 7 Eq. 137, in which Giffard, V. C., assumed that it was valid. But having referred to the Ashbury Co. v. Riche, L. R. 7 H. L. 653, it seems extremely doubtful whether it would be held valid. See also Hope v. International Financial Society, 4 C. Div. 327; and Garden Gully, &c., Co. v. McLister, 1 App. Cas. 54. See also supra, p. 50.

Form 98.

Remuneration of promoter.

In consideration of the great labour, expenses, and risk which A. B., one of the subscribers of the memorandum of association, has incurred and been put to in and relating to the promotion and formation of the company, and in registering the memorandum and articles of association thereof, the company shall when and so soon as shares shall have been allotted, pay to the said A. B., his executors, administrators, or assigns, the sum of £

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See Croskey v. Bank of Wales, 4 Giff. 317; Madrid Bank v. Pelly, 7 Eq. 442; Englefield Colliery Co., 8 C. Div. 388; supra, p. 19, infra, p. 19, and Forms 543 et seq. As between the company and a person who is not a party to the articles of association such a clause as the above does not amount to a contract on which the company can be sued. Melbado v. Porto Allegre Ry. Co., L. R. 9 C. S. 503; Eley v. Positine Government Co., 2 Ex. Div. 88. But if the company adopts and takes

the benefit of the acts of its promoters they have an equitable right to payment. Form 98. Terrell v. Hutton, 4 H. L. Cas. 1091; Touche v. Metropolitan Co., 6 Ch. 571; Hereford and South Wales Co., 1 C. Div. 621.

DISTRIBUTION OF ASSETS IN WINDING-UP.

Unless the holders of preference shares are given a preference in the distribution of assets, they will stand on a level with the other members in the winding up. In re London India-rubber Co., 5 Eq. 519; Griffith v. Paget, 6 C. D. 511.

It is comparatively seldom that the articles as originally framed contain any provisions giving a preference in the distribution of assets upon a winding up. Such provisions, however, are common enough in resolutions to increase capital, sec infra, Form 99; and they are sometimes inserted in the case of a reconstruction or amalgamation, see infra, "Reconstruction" and "Amalgamation."

In connection with these clauses, it may be well to consider the mode in which surplus assets are dealt with upon a winding up, in the absence of special provisions.

It is the duty of the liquidators in a voluntary, and the court in a compulsory winding up, to adjust the rights of the contributories inter se (s. 133, subs. 10, and s. 109 of the Companies Act, 1862).

If all the shares are fully paid up, no difficulty can arise; the assets are divided pro rata. But generally some shares are fully paid up, some not. The question is how in such case to adjust the rights of the contributories.

It is now well settled that in the absence of special provisions in the articles, or a special contract made on the issue of the shares, the adjustment should, as far as possible, throw the losses on the members in proportion to the nominal amount of capital held by them respectively.

The principle on which such an adjustment is based, was first settled in the case of the Anglesea Colliery Co., 1 Ch. 555. See also In re Scinde, &c., Corporation, 6 Ch. 53, note; In re Holyford Mining Co., Ir. L. R. 3 Eq. 208; Mande's case, 6 Ch. 51. It is difficult to reconcile the decision in Eclipse Gold Mining Co., 17 Eq. with the above cases.

Where, however, the profits are to belong to the members in proportion to the capital paid up [supra, p. 134, Clause 115] it is very commonly thought that the losses ought to be borne by them in the same proportions, and provision is made accordingly.

distributed.

The surplus assets of the company upon the winding up thereof shall Form 99. be applied: first, in repaying to the holders of the said preference shares How surplus the amount paid up thereon; then, in repaying to the holders of the assets to be deferred and other shares the amount paid up on such shares; and the residue (if any) shall be divided among the members in proportion to the nominal amount of the capital held by them respectively.

If the company shall be wound up the surplus assets shall be applied, Form 99a. in the first place, in repaying to the holders of the A shares the amount Preference to paid up thereon, and the residue shall belong to the holders of the B holders of A shares.

shares.

Form 99b. Special.

In the event of the company being wound up the surplus assets thereof shall be applied: first, in repaying to the holders of the shares, other than those to be issued pursuant to the said agreement of the day of, the full amount paid up on the shares held by them respectively; secondly, in paying to the holders of the shares, to be issued pursuant to the said agreement, the amount credited as paid up thereon; and the residue (if any) of such surplus assets shall belong to and be divided among the members in proportion to the nominal amount of capital held by them.

PROSPECTUSES.

INTRODUCTORY NOTES.

WHERE it is intended to appeal to the public for the capital to work a Prospectus. company, the usual course is to issue a prospectus inviting applications for shares. Formerly a prospectus was almost always issued before the formation of a company; but since the Act of 1862, which has rendered the formation of a company so inexpensive and simple a matter, it has become the general practice to issue the prospectus after the formation (ie., the registration) of the company. And it is desirable to continue this practice, since it prevents many disputes and difficulties which used to arise under the old practice.

In most cases the prospectus is prepared by or under the direction of How prepared and published the promoters before the company is formed, and after its formation is submitted to the directors of the company, who pass a resolution approving of it, with or without modification, and directing it to be issued. The mode in which the prospectus is brought to the notice of the public varies considerably. In some cases the parties rely almost entirely on the gratuitous circulation of printed copies of the prospectus, but generally the document, or an abridgment thereof, is advertised more or less extensively in the newspapers.

A prospectus is usually headed with the name of the company, and Form. generally states the nominal capital, the number and description of the shares offered, the terms of issue, the names of the directors, bankers, solicitors, brokers, auditors, and secretary, or of some of them, the objects and prospects of the company, how applications for shares are to be made, what contracts have been made, and where copies of the prospectus and of the memorandum and articles of association and of the contracts can be seen.

bility involved.

The preparation of a prospectus requires both skill and judgment, Skill required and involves great responsibility; for not only does the success of the and responsi company's appeal to the public depend to a considerable extent on the attractiveness of the document, but, if it is improperly framed, the company, its directors and promoters, may be exposed to litigation and liabilities of the most harassing and serious character.

As already mentioned, the prospectus is usually prepared by or under Practice. the direction of the promoters; and in most cases the draft is submitted to counsel for settlement. The memorandum and articles of association and any preliminary contracts are generally settled at the

Interests to be considered.

Interests of applicants.

same time, for these documents are very commonly framed in contem-
plation of the prospectus, and with reference to what it is desired
therein to say or not to say. The prospectus should not be finally
settled until after the formation of the company.

A prospectus has in general to be considered in the interests-.
1. Of the applicants for shares ;

2. Of the company ;

3. Of the directors;

4. Of the promoters;

5. Of the vendor ;

and in many cases the same hand has to settle the document with a due regard to the interests of all these persons.

It may be convenient here to refer to these interests separately :

:

AS TO THE INTERESTS OF APPLICANTS FOR SHARES. In the interests of applicants for shares the prospectus should be so framed that persons taking shares upon the faith of it may not have any cause for complaint. Accordingly it should not contain any misrepresentation, and should disclose all material facts. As was said by Vice-Chancellor Kindersley, in the case of the New Brunswick and Canada Ry. Co. v. Muggeridge, 1 Dr. and Sm. 38-"Those who issue a prospectus holding out to the public the great advantages which will accrue to persons who will take shares in a proposed undertaking, and inviting them to take shares on the faith of the representations therein contained, are bound to state everything with strict and scrupulous accuracy, and not only to abstain from stating as fact that which is not so, but to omit no one fact within their knowledge the existence of which might in any degree affect the nature, or extent, or quality of the privileges and advantages which the prospectus holds out as inducements to take shares."

The rule laid down in this passage was termed a "golden legacy" by Page-Wood, V.-C., in Henderson v. Lacon, 5 Eq. 262, and it was cited with approbation in the case of the Central Ry. Co. of Venezuela v. Kisch, L. R. 2 H. L. 113. In this case Lord Chelmsford, L. C., in giving judgment, said: "In an advertisement of this description [i.e., a prospectus] some allowance must always be made for the sanguine expectations of the promoters of the adventure, and no prudent man will accept the prospects which are always held out by the originators of every new scheme, without considerable abatement. But although, in its introduction to the public, some high colouring, and even exaggeration, in the description of the advantages which are likely to be enjoyed by the subscribers to an undertaking may be expected, yet no mis-statement or concealment of any material facts or circumstances ought to be permitted. In my opinion, the public, who are invited by a prospectus to join in any new adventure, ought to have the same opportunity of judging of everything which has a material bear

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