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Author: 
 
 Pi\iey, Francis William 
 
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 Trie director 
 
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 andbook 
 
 Place: 
 
 London 
 
 Date: 
 
 1900 
 
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 P68 
 
 Pixley, Francis V/illiam, 1852- 
 
 The director's handbook, by Francis \7, 
 
 3d ed. London, Good, 1900. 
 176. p. 22 cm. 
 
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 inttjeCitpofiietDgorb 
 
 LIBRARY 
 
 From the Library of 
 
 BERTRAND CHASE HINMAN 
 
 School of Mines, '90 
 
4 
 
 i 
 
 THE 
 
 Director's Handbook, 
 
 BY 
 
 FRANCIS W. PIXLEY, 
 
 0/ the Middle Temple, Barrister-at-Laii\ 
 
 A Fellow and Member of the Council of the Instiiutt of 
 
 Chartered Accountants in England and Wales. 
 
 AUTHOR OF 
 
 *'Thk Shareholder's Handbook;" 
 
 " Auditors : their Duties and Respoxsibiijties," &c., &c. 
 
 r H I R D E D I T I O X, 
 
 ILonDon : 
 
 HENRY GOOD k SON. 12, ArOORGATE STREET, E.C. 
 
 1900. 
 

 
 PREFACE TO THE THIRD EDITION. 
 
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 12, MOOROArE STRHKT, K.C. 
 
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 'n^HE object of the '^ Director's Handbook" 
 is to supply Directors of Companies, 
 more especially of those registered under the 
 Companies Acts, 1862 to 1900, with a practical 
 treatise on their administrative duties. It is 
 hoped it will also assist intending Directors of 
 projected Companies in the preliminary stages, 
 including the consideration of the Prospectus, 
 the Articles of Association, and other documents 
 demanding attention prior to the issue of the 
 Prospectus and the Allotment of Shares. 
 
 F. W. P. 
 
 London : 
 
 \st October^ 1900. 
 
CONTENTS. 
 
 CHAPTER I. 
 DuTiKS Prior to the Ai^lotment of Shares 
 
 CHAPTER II. 
 The Allotment of Shares 
 
 CHAPTER III. 
 Duties After the Allotment of Shares 
 
 PAGE. 
 
 50 
 
 Board Meetings 
 
 CHAPTER IV. 
 
 •• ••• ■•• 
 
 66 
 
 CHAPTER V. 
 Meetings of Shareholders ... 
 
 86 
 
 CHAPTER VI. 
 General Duties and Powers of Directors 
 
 113 
 
 CHAPTER VII. 
 
 Winding Up ... 
 
 • • • • • • 
 
 •• 143 
 
 The Directors' Liability Act, 1890 154 
 
 JL ixULS jfi. ... ... ••• ••• ••• ••• •'•0/ 
 
 X W Ux!r^ ... ••• ... ... ... ..♦ ... ...iyvj 
 
THE DIRECTOR'S HANDBOOK. 
 
 CHAPTER I. 
 
 DUTIES PRIOR TO THE ALLOTMENT OF SHARES. 
 
 THE position of a Director of a Public Company 
 has always been one involving great trust, and 
 consequently, grave responsibilities ; but the passing 
 of "The Directors' Liability Act, 1890," and, ten years 
 later, " The Companies Act, 1900," materially increased 
 the risk and responsibility of being the Director of a 
 new Company or of an existing Company issuing 
 additional shares and debentures. The duties of 
 Directors, as the name implies, are to direct the 
 Company's affairs, to appoint proper officers, who are 
 responsible to them for the management of the details 
 of the business carried on by the Company, reserving 
 for themselves the more important questions of adminis- 
 tration. The Director of a new Company has, in 
 addition to these duties, the extra responsibility that, 
 by placing his name on a prospectus, he indicates 
 that he has thoroughly considered the objects of the 
 proposed Company, and firmly believes in its chance 
 
THE director's HANDBOOK. 
 
 of success ; he is, moreover, liable to pay compensa- 
 tion to all persons who have subscribed for shares or 
 debentures on the faith of this prospectus for the loss 
 or damage they may have sustained by reason of any 
 untrue statement in the prospectus or in any report or 
 memorandum appearing therein. 
 
 Apart from these liabilities, his pecuniary risk may 
 be limited to the extent of his qualification shares, 
 and of any additional sum he may choose to invest in 
 the Company, but he accepts the responsibility of a 
 Trustee inviting subscriptions from the public, who 
 look to him and his colleagues to fully satisfy them- 
 selves that all due precautions have been taken before 
 they ask those who have not the same facilities for 
 inquiry and investigation to invest in the undertaking. 
 
 At the same time there is not any reason existing 
 in the Companies Acts, or in the latest legal decisions, 
 which need deter anyone, who is prepared to perform 
 his duties in a careful manner, from becoming a Director 
 of an established Company, or of one formed to take 
 over an established business, or of one formed even to 
 undertake an enterprise of an entirely new character. 
 
 A Director should, however, have the requisite 
 time at his disposal to attend to his duties. *' It 
 should be understood that a Director consenting 
 to be a Director has assumed a position involving 
 duties which cannot be shirked by leaving everything 
 to others'' [Drincqhier v. Wood). 
 
 DUTIES PRIOR TO THE ALLOTMENT OF SHARES. 3 
 
 Upon being invited to act as a Director of a 
 Company in course of formation, there are many matters 
 to be considered before giving consent. In the first 
 place, it is advisable to ascertain w^hat is the position 
 of Companies transacting business similar to that 
 proposed to be undertaken by the new Company, for 
 which purpose '' The Stock Exchange Official Intelli- 
 gence," or the "■ Stock Exchange Year Book," both 
 annual publications, may be consulted with great 
 advantage. In these books will be found the dates of 
 the incorporation of the principal Companies, their 
 capital, periodical dividends, and other useful infor- 
 mation. 
 
 Should the position of these Companies be satis- 
 factory, the intending Director should then consider 
 whether any proposed innovation on the business of 
 the established Companies would be likely to have a 
 beneficial or contrary effect, as it is very common for 
 new Companies to be formed on the lines of established 
 successful Companies, with a distinguishing feature 
 which it is supposed will be a special inducement for 
 influencing a share of the business which it is apparently 
 so profitable to conduct. 
 
 Another important consideration is the position 
 (social or commercial) of the other proposed Directors. 
 Some, if not all, will probably be connected with other 
 Companies, and the position of these Companies should 
 be ascertained. The " Directory of Directors," an annual 
 
 B 2 
 
THE director's HANDBOOK. 
 
 publication, will, for this purpose, in conjunction with 
 the books already mentioned, be useful to the intending 
 Director, and he should inquire into the antecedents 
 of those gentlemen who have not previously acted as 
 Directors, ascertain their social position, and, to a 
 certain extent, their aptitude for acting on the Board 
 of a Company. The position and capabilities of the 
 Directors with whom one is asked to associate is of 
 more importance than appears at first sight. It is 
 almost impossible for a Director to attend every 
 meeting, and when he is absent he will be bound by 
 the resolutions passed, although he may entirely dis- 
 agree with their purport. It is true he may at a 
 subsequent Board meeting have an opportunity ot 
 recording his protest against any resolution passed in 
 his absence, and, if not too late, endeavour to prevent 
 it being carried into effect; but it is most desirable to 
 be associated as a Director with those only in whom 
 the greatest confidence, both as to integrity and 
 capability, can be reposed. 
 
 It is also very desirable that a proposed Director 
 should ascertain definitely who are the promoters of 
 the Company, whether they have been engaged in 
 this capacity before, and, if so, what has been the 
 fate of the Companies started under their auspices. 
 Although the promoter, of course, disappears after the 
 allotment of shares, still he has it in his power to in- 
 volve the Directors in very great difficulties, and 
 
 DUTIES PRIOR TO THE ALLOTMENT OF SHARES. 5 
 
 those who are known to have promoted Companies 
 which have come to a disastrous ending should be 
 
 avoided. 
 
 Attempts are frequently made to conceal from the 
 proposed Directors the names of the real promoters 
 by putting forward those who are merely their 
 nominees. In some cases this is done by the promoters 
 themselves, in consequence of their being aware of 
 their own evil reputation. Under the circumstances 
 the inquirer may meet with a difficulty in ascertaining 
 the information he is seeking, but it is one which 
 can always be surmounted. 
 
 An intending Director should know, in addition to 
 the nature of the business proposed to be transacted, 
 what obligations will have to be taken over by the 
 Company after the allotment of shares. 
 
 He should, therefore, ask to see any contracts 
 which have been entered into by the promoters, and 
 which will be binding upon the Company on the date 
 at which it will be entitled to commence business. 
 These should be carefully perused by him, and, should 
 he be of opinion they are not really drawn in the 
 interest of the proposed Company, but rather to 
 saddle it with either undesirable responsibilities or 
 property, he should at once decline to act. 
 
 Many Companies are formed for the purpose of 
 their purchasing a declining business, or an estate or 
 property of some kind which could not be sold in the 
 
O THE DIRECTOR'S HANDBOOK. 
 
 ordinary market, and which can only be disposed of by 
 its owner successfully floating a Company to take 
 it off his hands. 
 
 On the other hand, the Companies Acts afford 
 those who may wish to retire from business, also 
 executors of deceased traders and others, great facilities 
 for realising sound businesses and other properties, 
 which, from their value, are beyond the resources 
 of ordinary buyers. 
 
 The antecedents of the proposed officers should also 
 be inquired into, the ability and standing of the 
 Solicitors being especially of great importance. An 
 intending Director can easily ascertain whether the 
 Solicitors bear a good name, or whether they have 
 been associated with the promotion of Companies 
 which are known to have been formed more with the 
 object of enriching the promoters than of becoming 
 sound investments for the public. 
 
 The prospectus is frequently presented to the 
 proposed Directors with the appointments of manager, 
 secretary, and other officials inserted. As the persons 
 thus nominated are usually friends of the promoter, 
 their past career should be most carefully investigated, 
 the appointments being, perhaps, conferred on them 
 as a reward for past services, or for other reasons, 
 without any regard being had for their suitability 
 for the positions assigned to them. 
 
 It is usual to call together the intending Directors 
 
 DUTIES PRIOR TO THE ALLOTMENT OF SHARES. 7 
 
 of a Company to discuss the proposed Memorandum 
 and Articles of Association, the Prospectus, and other 
 documents intended to be issued with it, and for this 
 purpose many meetings are frequently necessary. An 
 intending Director should be careful to attend all these 
 meetings, and, however he may trust his proposed 
 co-Directors, he should not, when unable to attend 
 himself, rely on the fact of their being present on 
 the ground that their interests are the same. The 
 documents which have to be settled before the Company 
 is incorporated are of the greatest importance, and 
 every sentence in the Prospectus, and many clauses 
 in the Memorandum and Articles of Association, 
 require the greatest care in discussion before they 
 are finally approved. 
 
 Previous to the passing of - The Directors' Liability 
 Act, 1890," a shareholder who brought an action 
 against Directors to recover money lost through his 
 subscribing for shares on the statements put forward 
 in the prospectus had to prove either fraud or 
 negligence on the part of the Directors, but now 
 the onus is laid upon the Directors, when an action 
 for compensation has been brought against them, of 
 proving that they had reasonable ground for believing, 
 and did believe up to the time of the allotment, 
 that all statements made in the prospectus were true. 
 In addition, therefore, to satisfying themselves 
 that the statements are true, the Directors of a 
 
{ 
 
 8 
 
 THE DIRECTOR'S HANDBOOK. 
 
 proposed Company should have documentary evidence 
 of the correctness of every fact put forward in the 
 prospectus, and arrange for its safe custody, so that 
 they may be able to produce it, if necessary, for the 
 purpose of proving they were justified in inviting 
 subscriptions for capital from the public. 
 
 A proposed Director should not permit the promoter 
 to hurry him through the preliminaries. It is no 
 protection to him to be assured by the promoter that 
 everything is in order, and that it is wasting time to 
 go over the ground again. The interests of the two are 
 not identical, the responsibility of the Director beginning 
 when the project of the promoter has been launched, 
 and the latter is free to devise fresh schemes for 
 another body of Directors to assist him in disposing of 
 Should a promoter persist in harassing an intend- 
 ing Director, the latter should intimate firmly that 
 he intends to fully satisfy himself that everything 
 is completely to his satisfaction before he allows a 
 prospectus to be issued with his name thereon, and 
 that he is determined the future regulations of the 
 Company shall be carefully considered, so as to guard 
 as much as possible against omissions or carelessly 
 prepared rules, which may interfere hereafter with 
 the prosperity of the Company. 
 
 At all these preliminary meetings a solicitor should 
 be present, to advise the intending Directors on the 
 various legal andother points, of which there are always 
 
 DUTIES PRIOR TO THE ALLOTMENT OF SHARES. 9 
 
 many to be considered. Usually, the proposed solicitor 
 to the Company is present, but in many instances it is 
 desirable the Directors should be attended by another 
 solicitor of their own selection, who acts solely on 
 their behalf, previous to the promotion of the Company, 
 and who retires after the allotment of shares has taken 
 place. The intending Directors may, of course, stipu- 
 late that the cost of their private solicitor be paid by 
 
 the promoter. 
 
 Should the Company be formed to take over and 
 carry on an established business, the intending 
 Directors should require the books to be examined 
 by a Chartered Accountant, to be approved by them- 
 selves. If his report be sufficiently satisfactory to 
 warrant applications for capital from the public, a 
 copy of the report should be embodied in the 
 prospectus. If too long to be printed /;/ ex^e?iso, 
 any proposed abbreviation should be submitted to the 
 Chartered Accountant, so as to avoid the risk of his 
 repudiating concurrence with the statement made as 
 not being strictly accurate. 
 
 In the case of an old-established business, the books 
 of account should be examined for at least five years, 
 and the result of each year's trading be clearly shown 
 to the intending Directors, even though the results of 
 the business for a shorter period be given in the 
 prospectus. If the annual profits have decreased, it 
 would undoubtedly be considered a fraud by the Courts 
 
\ 
 
 lO 
 
 THE DIRECTOR'S HANDBOOK. 
 
 for this to be concealed by merely giving the total 
 profits or the average profit of the years referred to 
 in the prospectus. 
 
 The intending Directors should not be satisfied 
 with a report of a Chartered Accountant merely 
 addressed to the vendor, still less with a profit and loss 
 account or balance sheet merely endorsed with the 
 name of the Chartered Accountant. Documents such 
 as these may merely have been prepared by the 
 Chartered Accountant for his client the vendor, and 
 perhaps under special instructions, which might make 
 them quite unreliable for the purpose of basing thereon 
 calcuhitions as to the probable dividends to be paid 
 by a Company formed to acquire the business. 
 
 A Chartered Accountant would naturally disclaim 
 any responsibility were a private document of this 
 nature, prepared by him, made use of for a purpose 
 wholly different to what was intended when it was 
 issued by him, and intending Directors should require 
 a report and set of accounts to be specially prepared 
 for the purposes of the prospectus and for their own 
 protection. 
 
 When the proposed Directors meet to discuss the 
 prospectus, each Director should take a note on his 
 copy of the alterations made, keep the amended copy 
 by him, and at subsequent meetings refer to it to 
 see that the fresh proofs have been duly corrected in 
 accordance with the alterations made at the previous 
 
 DUTIES PRIOR TO THE ALLOTMENT OF SHARES. II 
 
 meetings. It must be remembered that the Directors 
 are liable for the correctness of every statement made 
 in the prospectus, which is the document inviting the 
 public to join in the proposed undertaking, and which 
 has to be signed by every Director before being 
 published. The expression "prospectus" means any 
 prospectus, notice, circular, advertisement, or other 
 invitation, offering to the public for subscription or 
 purchase any shares or debentures of a company. 
 
 Promoters are, of course, allowed to take a sanguine 
 view in the prospectus, but no misstatement or 
 concealment of any facts or circumstances should be 
 permitted to appear, as it has been decided by an 
 eminent Judge that the public ought to have the same 
 opportunity of judging of everything which has a 
 material bearing on the true character of the adventure 
 as the promoters themselves possess. The prospectus 
 must not merely state the truth as far as it goes, but 
 should it conceal material facts the Directors run the 
 risk of being themselves personally liable for the whole 
 of the capital subscribed. 
 
 Every fact stated in the prospectus should, as 
 already stated, be closely inquired into by the proposed 
 Directors ; they should ask for a proof of the correctness 
 of the assertion, and even then it would be better for 
 them to quote the authority than to take upon them- 
 selves the responsibility of the assertion. For example, 
 assuming a Company about to take over an established 
 
12 
 
 THE DIRECTOR'S HANDBOOK. 
 
 business, a report on which had been prepared by a 
 firm of Chartered Accountants, to the effect that it was 
 making twenty per cent, profit, it would be absurd 
 for the Directors to make the assertion themselves 
 that tlie business was making- twenty per cent, 
 profit. The prospectus would be just as strong- for 
 the Directors to state that the Chartered Accountants 
 said so, and. having- the report in their possession, 
 they assert a fact, the correctness of which they 
 can at any time prove. 
 
 The late Vice-Chancellor Kindersley stated that, in 
 issuing a prospectus holding out to the public the great 
 advantages which will accrue to those who take shares. 
 Directors ''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 " 
 [Nezv Brunswick and Canada Railways Co. v, Mugggridgc]. 
 AVhen a Board of Directors knowingly made a 
 representation to the public that they and their friends 
 had subscribed a large portion of the capital, knowing 
 well the fact was not so, they were fixed by the Court 
 with a guilty knowledge of the misrepresentation. 
 
 The following examples, taken from reports of cases 
 in the Courts in which Directors were interested, will 
 
 DUTIES PRIOR TO THE ALLOTMENT OF SHARES. 1 3 
 
 suffice to show the care which should be exercised by 
 Directors in connection with the issue of a prospectus:^ 
 All the Directors of a Company approved a 
 prospectus, issued by the Company, inviting subscrip- 
 tions for the preference and debenture capital, and 
 stating that the whole of the ordinary shares would be 
 taken by the Directors. Directors who never took 
 any ordinary shares, and whose names were not placed 
 on the register of members as holders thereof, were 
 held in the winding up of the Company to be liable 
 as holders of the ordinary shares— not on the ground 
 of estoppel, but because they had agreed to become 
 Directors on the terms mentioned in the prospectus 
 [In re Moore Brothers & Co.). 
 
 The Directors of a Company issued debentures and 
 shares as fully paid to a contractor in order that he 
 might do certain necessary works, and in addition 
 might pay certain creditors sums in excess of their 
 just debts, and take up shares in the Company, and 
 otherwise benefit the shareholders and Directors. It 
 was held that the Directors were liable to return any 
 benefit they had received, and were, except one who 
 had not participated in the scheme, also liable to 
 make good the excessive consideration and indemnify 
 the Company against loss on the shares issued as 
 paid up [London Trust Co, v. Mackenzie), 
 
 The L. Co. was promoted and formed by the 
 Directors of the L. Syndicate for the purpose of 
 
14 
 
 THE director's HANDBOOK. 
 
 purchasing part of the property of the Syndicate. The 
 Directors of the Syndicate prepared and signed the 
 Memorandum and Articles of Association of the Com- 
 pany, the Articles nominating them as Directors, and 
 stating specifically that they were also the Directors 
 of the Syndicate. They also prepared the Company's 
 prospectus and purchase contract, and aihxed the 
 seals of the Syndicate and of the Company to the latter. 
 The Company's solicitor and secretary were also the 
 same as those of the Syndicate. 
 
 Two years after the date of the contract and the 
 completion of the purchase the shareholders of the 
 Company, believing that their property had been 
 purchased at an over-value, and that there had been 
 misrepresentation in the contract and prospectus, 
 appointed an independent Board of Directors, who, 
 after investigating the facts, and with the sanction of a 
 general meeting of the shareholders, brought an action 
 against the Syndicate and the Directors for rescission 
 of the contract and damages, on the ground of mis- 
 representation, misfeasance, breach of trust, and 
 concealment of material facts, but not alleging fraud. 
 From the date of the contract and down to, and also 
 since, the commencement of the action, the Company 
 had, first by its original Directors, and afterwards by 
 its independent Board, carried on business and worked 
 the property the subject of the contract. At the trial 
 the action was dismissed. 
 
 DUTIES PRIOR TO THE ALLOTMENT OF SHARES. 1 5 
 
 On being taken to the Court of Appeal, Lord 
 Justice Lindley, the Master of the Rolls, and Lord 
 Justice Collins held that the Company was not 
 entitled to rescission or damages, for (i) at the date 
 of the contract the Company had, by its Memorandum 
 and Articles, notice that its IDirectors were also the 
 vendors or agents of the vendor Syndicate, and the 
 mere fact that its Directors did not constitute an 
 independent Board was not a sufficient ground for 
 setting aside the contract; (2) there had been no 
 misrepresentation made to, or any material fact con- 
 cealed from, any of the persons who were members 
 of the Company at the date of the contract, those 
 persons being the Directors themselves; (3) although 
 the contract and prospectus were, on the evidence, 
 misleading in certain particulars, which would have 
 entitled the Company at the time to repudiate the 
 contract, yet through the subsequent alteration of 
 the property, consequent on its being worked by the 
 Company, the position of the parties had been so 
 changed that they could not be restored to their 
 original position ; and (4) the defendants, the Direc- 
 tors, had not been guilty of such negligence or breach 
 of trust as to render them liable in damages in law 
 for the loss occasioned to the Company, or in equity 
 to make good the loss. 
 
 It was, however, held by Lord Justice Rigby (i) 
 that, in the promotion of the Company, the preparation 
 
\ 
 
 i6 
 
 THE director's HANDBOOK. 
 
 and sealing of the contract, and the preparation 
 and issue of the prospectus, the original Directors 
 had, while acting as sole agents for the vendor 
 Syndicate, constituted themselves sole fiduciary 
 agents for the purchasing Company, and that the 
 Company was therefore entitled to rescission (but 
 accounting for the profits of its working) on the 
 principle that no fiduciary agent can bind his principal 
 by a sale to him of such agent's property where the 
 principal has purchased without independent advice, 
 and that the notice in the Memorandum and Articles 
 of the double relation of its Directors was ineffectual 
 to discharge them from the obligations involved in that 
 principle; and (2) that the Company had not lost its 
 right of rescission either (a) through delay — for time 
 did not run during the domination of the original 
 Directors, and the non-disclosure by them of material 
 facts ; or [b] through alteration of the property, the 
 alteration having been in effect the act of the vendor 
 Syndicate by its Directors [Laotmas Nitrate Co. v. 
 Lagunas Syndicate), 
 
 A favourite device of promoters to obtain remunera- 
 tion is to have themselves joined as part owners of a 
 property, about to be sold to a Company, in which 
 they are not really interested. Directors who know- 
 ingly allow promoters to obtain remuneration by an 
 arrangement of this nature can be held guilty of 
 misfeasance [Bland's Case). 
 
 DUTIES PRIOR TO THE ALLOTMENT OF SHARES. 1 7 
 
 A subscriber of the Memorandum of Association 
 of a Company limited by shares is (in the absence 
 of any provision in the Articles of Association, or 
 of an express agreement between him and the 
 Company to the contrary) not liable to make any 
 payment in respect of the shares for which he sub- 
 scribes, except as and when calls are made upon 
 him in accordance with the provisions of the Articles. 
 
 If Directors issue other shares besides those which 
 are taken by the subscribers of the Memorandum, 
 there is nothing to prevent them from offering those 
 shares on such terms as regards payment to the 
 Company on application and allotment as they may 
 think expedient. 
 
 If, however. Directors require other applicants for 
 shares to make payments on application and allot- 
 ment, and issue their own shares for which they 
 have subscribed the Memorandum without requiring 
 any such 'payments to be made, and without dis- 
 closing to the other shareholders this difference 
 between their position and that of the Directors, 
 they commit a breach of duty, even though in so 
 doing they act without fraud, and in the belief that 
 they are doing nothing wrong. 
 
 Directors who so use their powers as to obtain 
 benefits for themselves at the expense of the other 
 shareholders, without informing them of the facts, 
 cannot be allowed to retain those benefits, but must 
 
 c 
 
i8 
 
 THE director's HANDBOOK. 
 
 account for them to the Company, so that all the 
 shareholders may participate in them [Alexander v. 
 Automatic Telephtmc Co.). 
 
 A misleading statement in a prospectus is an 
 "untrue statement" within Section 3, Subsection (i), 
 of "The Directors' Liability Act, 1890." The liability 
 imposed by this section for any untrue statement 
 in a prospectus is absolute, and is in no way affected 
 by the consideration whether the statement is untrue 
 in the sense in which it is used by those who issue 
 the prospectus. Persons issuing- a prospectus con- 
 taining an untrue statement can only escape liability 
 under the statute by proving that they had "reason- 
 able ground " for believing the statement to be true 
 in fact \ Greet mood v. Leather- Shod Wheel Co.). 
 
 Directors are often entrapped by a promoter to 
 perform acts for the so-called benefit of the Company 
 by promises which they ultimately find, to their cost, 
 the promoter has no power to keep. 
 
 For example, when a Director took shares for the 
 purpose of enabling the Company to obtain registration, 
 on the understanding that no calls should be made upon 
 him, and the shares were subsequently forfeited to 
 relieve him from liability, he was, when the Company 
 went into liquidation, put on the list of contributories 
 for the shares [Lo?idon and County Assurance^ ex parte 
 
 Joiies). 
 
 Where a Director had subscribed the Memorandum 
 
 DUTIES PRIOR TO THE ALLOTMENT OF SHARES. 1 9 
 
 of Association for 500 shares, but only 250 were allotted 
 to him, an arrangement with his co-Directors, under 
 which a quasi- surrender or forfeiture was made by a 
 deed of release and indemnity, was ineffectual to relieve 
 him from his liability [Hall's Case). 
 
 Satisfactory proof that not only the capital pro- 
 posed to be offered* for subscription, but also that the 
 amount (if any) fixed by the Memorandum or Articles 
 of Association, and named in the prospectus as the 
 minimum subscription upon which the Directors will 
 proceed to allotment, will be sufficient to float the 
 Company, and to enable it to commence business on 
 a sound financial basis, should be required by the 
 proposed Directors when discussing the prospectus. 
 They should also determine the class of shares into 
 which the capital is to be divided. If any preference 
 shares are to form part of the capital, all proposed 
 to be issued should, as a rule, be offered for subscrip- 
 tion, it being very undesirable any should be handed 
 to a vendor as part of the purchase-money. This 
 should be taken either entirely in ordinary or deferred 
 shares, or partly in shares of this description and 
 partly in cash. 
 
 A person is not capable of being appointed a 
 Director of a Company by the Articles of Association, 
 and must not be named as a Director or proposed 
 Director in any prospectus, unless before the regis- 
 tration of the Articles, or the publication of the 
 
 c 2 
 
20 
 
 THE DIRECTOR'S HANDBOOK. 
 
 prospectus, as the case may be, he has by himself, or 
 by his agent authorised in writing, signed and filed with 
 the Registrar of Joint Stock Companies a consent in 
 writing to act as a Director, and either signed the 
 Memorandum of Association for a number of shares 
 not less than his qualification (if any), or signed and 
 filed with the Registrar a contract in writing to take 
 from the Company and pay for his qualification shares 
 (if any). In signing the Memorandum of Association 
 the Director must write with his own hand the number 
 of shares he agrees to take, but his address and occupa- 
 tion may be written by another person. 
 
 These regulations, however, do not apply 
 to a Company registered before the passing of 
 **The Companies Act, 1900" (8th August, 1900), or to 
 a Company which does not issue any invitation to the 
 public to subscribe to its shares, or to a prospectus 
 issued by or on behalf of a Company after the 
 expiration of one year from the date at which the 
 Company is entitled to commence business. 
 
 Every Director who is by the regulations of his 
 Company required to hold a specified share qualification 
 and who is not qualified is required to obtain his 
 qualification within two months after his appointment, 
 or such shorter time as may be fixed by the regulations 
 of the Company, and his ofiice of Director is vacated 
 should he not do so. It is also vacated if, after the 
 expiration of the two months or the shorter period 
 
 DUTIES PRIOR TO THE ALLOTMENT OE SHARES. 2 1 
 
 (if any) fixed by the regulations, he ceases at any 
 time to hold his qualification. 
 
 A Director thus vacating office is incapable of 
 being reappointed a Director until he has obtained 
 his qualification. 
 
 If any unqualified person acts as Director of a 
 Company he is liable to pay to the Company the 
 sum of five pounds for every day during w^hich he 
 so acts. 
 
 Occasionally a small proportion of the capital of 
 a Company is offered for subscription amongst those 
 who assist in the promotion, conferring on its 
 holders the privilege of receiving a large proportion 
 of the profits after the other shareholders have 
 received a substantial dividend. These are known 
 as " Founders' Shares,'' and there is not the slightest 
 objection to a proposed Director subscribing for 
 some of these shares. In order to avoid disputes, 
 which are likely to arise on the division of profits, 
 it is advisable, when shares of this description are 
 issued, for a clause to be inserted in the Articles of 
 Association that the profits divisible among the 
 holders of the Founders' Shares are to be settled 
 by the periodical accounts certified by the Auditors 
 of the Company. 
 
 In order to influence capital, promoters sometimes 
 announce in a prospectus that dividends are guaranteed 
 at a certain rate for a certain period. Directors whose 
 
9 O 
 
 THE UIKKCTOK'S HANDBOOK. 
 
 names appear on a prospectus bearing a statement to 
 this effect are clearly bound to require that a sum 
 sufficient to pay these dividends is invested in Consols, 
 or in one of the securities in which trustees are allowed 
 to invest, in such a manner as to be under their control 
 should the money be required. Under no circumstances 
 should Directors allow a prospectus to be issued stating 
 that dividends are guaranteed if the only security be 
 the lodgment of vendors' shares. This has frequently 
 happened and proved a tempting bait to investors; 
 although it is apparent that, should there be occasion 
 to call upon the guarantor, the shares deposited as 
 security must, for this reason alone, be so seriously 
 depreciated as to have little, if any, market value. 
 
 Every prospectus issued must be dated, which date 
 is, subject to the contrary being proved, taken as the 
 date of publication of the prospectus. One copy of 
 every prospectus issued must be signed by every person 
 who is named therein as a Director or proposed 
 Director, or by his agent, duly authorised by him in 
 writing, and this copy of the prospectus must be filed 
 with the Registrar of Joint Stock Companies on or 
 before the date of its publication. The prospectus must 
 not be issued until this copy has been filed, and every 
 prospectus must state on its face that it has been so 
 
 filed. 
 
 Every prospectus issued by or on behalf of a 
 Company, or by or on behalf of any person who is 
 
 DUTIES PRIOR TO THE ALLOTMENT OF SHARES. 23 
 
 or has been engaged or interested in the formation of 
 
 the Company, must state — 
 
 {a) The contents of the Memorandum of Associa- 
 tion, with the names, descriptions and addresses 
 of the signatories, and the number of shares 
 subscribed for by them respectively; and the 
 number of founders' or management shares, if 
 any, and the nature and extent of the interest 
 of the holders in the property and profits of the 
 Company ; 
 id) The number of shares, if any, fixed by the 
 Articles of Association as the qualification of a 
 Director, and any provision in the Articles of 
 Association as to the remuneration of the 
 Directors ; 
 
 [c) The names, descriptions, and addresses of the 
 
 Directors or proposed Directors ; 
 
 (d) The minimum subscription on which the 
 
 Directors may proceed to allotment, and the 
 amount payable on application and allotment 
 on each share ; and, in the case of a second 
 or subsequent offer of shares, the amount 
 offered for subscription on each previous allot- 
 ment, and the amount actually allotted ; and 
 the amount, if any, paid on such shares ; 
 (c) The number and amount of shares and deben- 
 tures issued, or agreed to be issued, as fully 
 or partly paid up otherwise than in cash, and 
 
24 
 
 THE DIRECTOR'S HA.NDBOOK. 
 
 in the latter case the extent to which they are 
 so paid up, and in either case the consideration 
 for which such shares or debentures have been 
 issued or are proposed or intended to be issued ; 
 
 (/) The names and addresses of the vendors of any 
 property purchased or acquired by the Com- 
 pany, or proposed so to be purchased or 
 acquired, which is to be paid for wholly or 
 partly out of the proceeds of the issue offered 
 for subscription by the prospectus, or the 
 purchase or acquisition of which has not been 
 completed at the date of publication of the 
 prospectus, and the amount payable in cash, 
 shares, or debentures to the vendor, and where 
 there is more than one separate vendor, or the 
 Company is a sub-purchaser, the amount so 
 payable to each vendor ; 
 
 [o-) The amount (if any) paid or payable as purchase 
 money in cash, shares, or debentures of any 
 such property as aforesaid, specifying- the 
 amount payable for goodwill ; 
 
 (//) The amount (if any) paid or payable as com- 
 mission for subscribing or agreeing to sub- 
 scribe, or procuring or agreeing to procure 
 subscriptions, for any shares in the Company, 
 or the rate of any such commission ; 
 
 [t) The amount or estimated amount of preliminary 
 expenses ; 
 
 DUTIES PRIOR TO TPIE ALLOTMENT OF SHARKS. 25 
 
 (/) The amount paid or intended to be paid to any 
 promoter and the consideration for any such 
 payment ; 
 
 {k) The dates of and parties to every material 
 contract and a reasonable time and place at 
 which any material contract or a copy thereof 
 may be inspected : Provided that this require- 
 ment shall not apply to a contract entered into 
 in the ordinary course of the business carried 
 on or intended to be carried on by the Company, 
 or to any contract entered into more than three 
 years before the date of publication of the 
 prospectus ; 
 
 (/j The names and addresses of the Auditors (if 
 any) of the Company. 
 
 {m) Full particulars of the nature and extent of 
 the interest (if any) of every Director in the 
 promotion of or in the property proposed to 
 be acquired by the Company, with a statement 
 of all sums paid or agreed to be paid to him 
 in cash or shares by any person either to 
 qualify him as a Director or otherwise for 
 services rendered by him in connection with 
 the formation of the Company. 
 
 These regulations do not apply to a circular or 
 notice inviting the existing shareholders or debenture 
 holders of a Company to subscribe for further shares 
 or debentures. 
 
26 
 
 THE DIRECTOR S HANDBOOK. 
 
 The requirements also as to the Memorandum of 
 Association, and the qualification, remuneration, and 
 interest of Directors, the names, descriptions, and 
 addresses of Directors or proposed Directors, and the 
 amount or estimated amount of preliminary expenses 
 do not apply in the case of a prospectus published 
 more than a year after the date at which the Company 
 is entitled to commence business, while in the case of 
 a prospectus published more than one year after the 
 date at which the Compiiny is entitled to commence 
 business the obligation to disclose all material contracts 
 is limited to a period of two years immediately pre-" 
 ceding the publication of the prospectus. 
 
 The terms of any contract referred to in the 
 prospectus meiy not be varied prior to the statutory 
 meeting, except subject to the approval of the statutory 
 meeting. 
 
 The Memorandum of Association should be carefully 
 perused. This contains the name of the Company, the 
 part of the United Kingdom in which its registered 
 office is to be situated, and the objects for which it 
 is to be established. It is very desirable that this 
 last part should be made as full and ample as 
 possible, and it should include powers to transact 
 business not intended by the Company at its first 
 commencement, but which might possibly be thought 
 desirable hereafter, as a Company has never any 
 power to transact business not provided for in its 
 
 DUTIES PRIOR TO THE ALLOTMENT OF SHARES. 27 
 
 Memorandum, and the fullest sanction given by the 
 shareholders will not make valid any transaction 
 outside the powers of the Company [Attoiiiey-General 
 V. Great Easter 71 Railway Co.). 
 
 Directors who undertake any business outside the 
 powers conferred by the Memorandum of Association 
 may be held personally liable for any loss the 
 Company may sustain. 
 
 The Memorandum of Association is, in fact, the 
 charter of the Company, and defines the limitation of 
 its powers, but anything which is fairly incidental to 
 the Company's objects, as defined, is not, unless ex- 
 pressly prohibited, held as ultri vires. The Articles 
 of Association cannot modify or alter any condition, 
 expressed or implied, in the Memorandum, yet, being 
 contemporaneous documents, they are, for the purposes 
 of construction, to be read together, and the Articles 
 may serve to explain that which is ambiguous in the 
 Memorandum [London Financial Association v. Kclk). 
 
 The Articles of Association should also be gone 
 carefully through. These and the Memorandum are, of 
 course, always drawn by the Solicitors, and usually 
 settled by Counsel, but there are several clauses 
 especially affecting the Directors, which should be 
 considered by them. For example, the qualification 
 is usually fixed by the Articles, and an intending 
 Director must, of course, take care that the qualification 
 is not in excess of the sum he is prepared to invest in 
 
zS 
 
 THE DIRECTOR S HANDBOOK. 
 
 the Company. It is not necessary that the qualification 
 of future Directors should be the same as that of 
 the first, and, as few people care to invest much money 
 in a new Company, it is very usual that the first 
 Directors should hav^e a lower qualification than those 
 who are afterwards elected to the Board. 
 
 Another point to be considered is the remuneration 
 to be paid to the Directors. In settling the amount, due 
 regard must be had to the proposed capital of the 
 Company, and the amount of business it is considered 
 will be transacted, as a small Company, with ;£5o,ooo 
 capital, could not be expected to be able to pay so 
 heavy a remuneration to its Directors as a Company 
 employing ^'r, 000,000. A very desirable way of 
 remunerating the Directors is to give them a fixed 
 minimum remuneration, such to be increased according 
 to the dividends paid to the shareholders. For example, 
 the Articles might contain a provision that the 
 minimum remuneration for the Board should be ^^500, 
 ^750, or ^1,000, with an additional £250 or ^'500 for 
 each one per cent, paid to the shareholders lifter they 
 had received a five per cent, dividend. 
 
 Directors should be careful that the Articles are not 
 so worded that they are precluded from earning any 
 remuneration except for each completed year. It has 
 been held that where the Articles allowed remuneration 
 at so much for each year, nothing could be allowed 
 Directors except for services for a full year, and that 
 
 f 
 
 DUTIES PRIOR TO THE ALLOTMENT OF SHARES. 29 
 
 there could not be any apportionment [Salton v. New 
 Bees ion Cycle Co.). 
 
 It is also quite legitimate for the Articles of 
 Association to contain a clause that the first Directors 
 shall remain in office for two or three years, and 
 then for one-third in number to retire by rotation at the 
 annual general meetings after that date. 
 
 Very frequently, when the transactions of a Com- 
 pany have not been satisfactory, an attempt is made at 
 the annual meetings to remove the Directors. In the 
 heat of discussion many names are suggested, and, 
 perhaps, those shareholders who have made the greatest 
 noise, but who may not have any business capcicities, 
 are elected to fill the vacancies. To provide against 
 this result — which is so often destructive to a Company, 
 as it frequently removes, perhaps, the most useful 
 members of the Board — it is desirable a clause should 
 be inserted in the Articles of Association that no 
 Director can be elected at an annual meeting, with the 
 exception of a retiring Director, unless his name has 
 been sent in to the secretary, with an intimation of 
 his willingness to act, if elected, a fortnight before the 
 meeting. 
 
 It is also desirable there should be a clause in the 
 Articles of Association that the Auditors shall be 
 Fellows or Associates of the Institute of Chartered 
 Accountants, and that the holding of shares in the 
 Company shall disqualify anyone for this position, 
 
30 
 
 THF. DIRKCTOR'S HANDBOOK. 
 
 it being very necessary an Auditor shall be strictly 
 impartial. 
 
 If it is intended that commission shall be paid to 
 persons for subscribing or agreeing to procure sub- 
 scriptions for shares, the payment of the commission, 
 and the amount or rate per cent, of the commission, 
 must be authorised by the Articles. In approving the 
 amount inserted in the draft Articles, the proposed 
 Directors must satisfy themselves that it is not ex- 
 cessive, and that this addition to the real purchase- 
 money will not interfere with the Company paying 
 what they may consider should be the lowest dividend 
 foreshadowed by the prospectus. 
 
 The Articles of Association are a contract only as 
 between the members inter se in respect of their rights 
 as shareholders, and it is, therefore, useless to insert 
 clauses in them for the protection of third parties, as 
 the latter would have no right to enforce performance 
 of such acts. For example, if the Articles contain 
 a clause that a certain person shall be employed in 
 a particular appointment, there is no contract with 
 him for breach of which he can successfully sue. If 
 the Articles provide that the Company shall pay 
 preliminary expenses, this does not give promoters 
 a right of action against the Company for their 
 payment. 
 
 Articles which provided that all the original shares 
 should be considered as fully paid-up shares did not 
 
 DUTIES PRIOR TO THE ALLOTMEN 1 OF SHARES. 31 
 
 protect the holders of these shares from being liable 
 for calls [Dent's Case). 
 
 Having settled the Memorandum and Articles ot 
 Association and the prospectus, it will then have to 
 be determined as to how the Company is to be brought 
 out. As a rule, the expenses are borne by the promoters, 
 who, in return for their risk of capital and time, usually 
 receive a substantial sum. This is only reasonable, as 
 those who make it a business to promote Companies 
 find that only a certain proportion of them float, and, 
 therefore, those which are successfully launched must 
 pay for the unsuccessful attempts of the same promoters. 
 
 There are many ways of arranging this sum, the 
 most satisfactory being for the promoter to receive 
 a fixed percentage, either on the nominal capital of the 
 Company or on the amount subscribed. It is, as 
 already stated, the duty of the Director to see that this 
 amount is not excessive, or such as to cripple the 
 resources of the Company. It is required by the law 
 that the whole amount to be paid shall be distinctly 
 set forth in the prospectus, also that the Directors are 
 not aware of any sums paid to the promoter from any 
 other source except that stated on the prospectus. 
 
 Upon any offer of shares for public subscription it 
 has been made lawful by "The Companies Act, 1900," 
 for a Company to pay a commission to any person in 
 consideration of his subscribing or agreeing to 
 subscribe, whether absolutely or conditionally, for any 
 
32 
 
 THE director's HANDBOOK. 
 
 shares in the Company, or procuring or agreeing to 
 procure subscriptions, whether absolute or conditional, 
 for any shares in the Company, if the payment of the 
 commission and the amount or rate per cent, of the 
 commission paid or agreed to be paid are respectively 
 authorised by the Articles of Association, and disclosed 
 in the prospectus, and the commission paid or agreed 
 to be paid does not exceed the amount or rate so 
 
 authorised. 
 
 With these exceptions a Company may not apply 
 any of its shares or capital money either directly, or 
 indirectly in payment of any commission, discount or 
 allowance to any person in consideration of his 
 subscribing or agreeing to subscribe, whether absolutely 
 or conditionally, for any shares of the Company, or 
 procuring or agreeing to procure subscriptions, whether 
 absolute or conditional, for any shares in the Company, 
 whether the shares or money be so applied by being 
 added to the purchase money of any property acquired 
 by the Company, or to the contract price of any work to 
 be executed for the Company, or the money be paid out 
 of the nominal purchase money or contract price, or 
 
 otherwise. 
 
 A Company may, however, pay such brokerage as, 
 prior to the passing of ** The Companies Act, 1900," 
 it had been lawful for a Company to pay. This is 
 the proper scale of commission for a broker's services, 
 as laid down in Metropolitan Association v. Scrimgeour, 
 
 I 
 
 DUTIES PRIOR TO THE ALLOTMENT OF SHARES. ^ 
 
 When part of the capital of a Company consists 
 of founders' shares it is usual for the preliminary 
 expenses to be paid by the founders. The Company 
 thus starts clear of fictitious assets accounts, which 
 have to be gradually liquidated during the early years 
 of a Company's existence, and which form such an 
 unsatisfactory item in the balance sheets until they 
 are extinguished. 
 
 There is no objection to a Director subscribing for 
 founders' shares, but he should not be a party to any 
 underwriting arrangements the promoter may have 
 made for securing the capital. *' The Companies Act, 
 1900," enacts that the number of founders' or manage- 
 ment shares, and the nature and extent of the interest of 
 the holders in the property and profits of the Company, 
 must be stated in the prospectus. 
 
 It is also very desirable, in the interests of the 
 Directors, that, before allowing the prospectus to be 
 issued, they should receive an indemnity from all 
 persons whom they know to have been employed by 
 the promoter in the preliminary stages, otherwise it 
 is possible a claim may be made against them in the 
 event of the Company not floating. 
 
 Very frequently the Directors of the Company are 
 asked by the promoter to subscribe to the Memorandum 
 of Association for the number of shares they intend to 
 take; this they should be very careful about before 
 acceding to, as, once registered, the Company is formed, 
 
34 
 
 THE DIRFXTOR'S HANDBOOK. 
 
 and it may be put into liquidation before the allot- 
 ment takes place, in which case claims might be 
 made upon the signatories to pay the expenses incurred 
 by the promoter. 
 
 In nearly every Company a Director is required by 
 the Articles of Association to hold a minimum number 
 of shares as a qualification for the office, and he must, 
 in the case of a new Company, either sign the 
 Memorandum of Association for a number of shares 
 not less than his qualification or sign and file with 
 the Registrar of Joint Stock Companies a contract in 
 writing to take from the Company and pay for his 
 qualification shares. 
 
 A direction in Articles of Association, or in an 
 Act of Parliament, that a Director must, as his quali- 
 fication, hold shares "in his own right" does not 
 mean that he must be personally and beneficially 
 interested in the shares {Pulbrook v. Richmond Consoli- 
 dated Mining Co.), 
 
 Should a Director intend to be interested in the 
 promotion, or wish to receive any commission on 
 influencing capital, he must be careful that full par- 
 ticulars of the nature and extent of his interest be 
 stated in the prospectus. This statement must 
 contain all sums paid or agreed to be paid to him 
 in cash or shares by any person, either to qualify 
 him as a Director or otherwise for services rendered by 
 him in connection with the formation of the Company. 
 
 \ 
 
 \ 
 
 DUTIES PRIOR TO THE ALLOTMENT OF SHARES. 35 
 
 Should he not wish them to be known, it is 
 advisable he should not join the Board until after 
 the allotment of shares, when he can be elected 
 either by the Board or by the shareholders at the 
 statutory meeting according to the powers contained 
 in the Articles as to election of Directors. 
 
 A Director, or any other person who signs the 
 Memorandum of Association, contracts to become a 
 shareholder in repect of that number of shares, and 
 is absolutely bound to take them from the Company 
 and pay the consideration for the same. It will not, 
 therefore, do for him to buy the shares from any 
 other person. So long as there are shares that can 
 be allotted to him, he is liable to be called upon 
 to fulfil that obligation ; but should no allotment have 
 been made to him, and all the shares have been 
 allotted to other persons, he is then no longer 
 liable. 
 
 Should a subscriber to the Memorandum wish to 
 be rid of his liability, he should take the shares and 
 arrange for their immediate transfer. The subscribers 
 are at liberty, liowever, to withdraw at any time 
 before the Company has been registered. 
 
 Before the prospectus is issued a banking account 
 should be opened, and in their own interests the 
 Directors should require the form of application for 
 shares to be so worded that the moneys forwarded 
 with the applications are only to be received by the 
 
 D 2 
 
36 
 
 THE DIRFXTOR'S HANDBOOK. 
 
 bankers, so that, when once they are lodged there, 
 they can only be got out by means of cheques 
 signed by the Directors, otherwise the Directors 
 run the risk of being made responsible for money 
 received at the office of the Company and wrongly 
 appropriated. 
 
 The production of the certificate of the Company's 
 incorporation, given by the Registrar of Joint Stock 
 Companies, should be required by the Board before 
 allowing the prospectus to be issued. This certificate is 
 conclusive evidence that all the requisitions of the 
 Companies Act in respect of registration, and ot 
 matters precedent and incidental thereto, have been 
 complied with. 
 
 The Registrar may accept a statutory declaration 
 by a person named in the Articles of Association as 
 a Director of compliance with all or any of the requi- 
 sitions of the Companies Act as sufficient evidence 
 on which to issue his certificate. Any Director asked 
 to make such a declaration by a promoter should 
 invariably refuse to do so, and either require the 
 solicitor to undertake the responsibility or leave the 
 promoter to obtain the certificate by satisfying the 
 Registrar in some other way. 
 
 Should an intending Director, after attending 
 preliminary meetings, resolve to decline a seat at the 
 Board, he should intimate his intention to the other 
 proposed Directors, the solicitors, and the promoter, 
 
 \ 
 
 \ 
 
 DUTIES PRIOR TO THE ALLOTMENT OF SHARES. 57 
 
 in writing, and forbid his name being included in 
 the prospectus or in any document issued. 
 
 A person whose name is wrongly included in a 
 prospectus as a Director is entitled to be indemnified 
 by the person who wrongfully inserted his name 
 against any damages or costs incurred by reason of 
 this wrongful insertion. 
 
 Should the Directors after the issue of a pro- 
 spectus discover that it contains a mistake, it is their 
 duty to call the attention of the subscribers to this 
 in the clearest manner, and it is not sufficient to 
 issue a new prospectus in which the facts are 
 correctly stated (Aruison v. Smith). 
 
,8 
 
 THE director's HANDBOOK. 
 
 THE ALLOTMENT OF SHARES. 
 
 39 
 
 \ 
 
 CHAPTER II. 
 
 THE ALLOTMENT OF SHARES. 
 
 THE Directors should meet for the purpose of 
 allotting the shares as soon as the subscription 
 list is closed, for, as applicants for shares are at liberty 
 to withdraw their application at any time previous to 
 the allotment, the Company might lose the benefit of 
 a certain amount of c^ipital, should the allotment be 
 unduly delayed. 
 
 The shares should be allotted strictly on the terms 
 contained in the prospectus, for, if new terms or con- 
 ditions are introduced, there will be no contract. 
 
 Unless the Articles of Association of a Company 
 authorise the Directors to delegate the power of 
 allotting shares to a Committee, shares should only 
 be allotted at a Board meeting at which is present 
 the requisite quorum {^Harris s Case), 
 
 The quorum is usually settled by the Articles of 
 Association, but is sometimes fixed by the Directors, 
 as explained hereafter. 
 
 In a case where the Articles excluded Table "A," 
 provided that the shares should be allotted by the 
 
 Directors, that the Directors should not be more than 
 ten nor less than three, that the first Directors should 
 be appointed by the subscribers to the Memorandum, 
 and that the Directors might determine the quorum, the 
 subscribers met and appointed four persons Directors. 
 Two days afterwards the first meeting of Directors was 
 held, at which two only were present. No suflftcient 
 notice of this meeting had been given to all the 
 Directors. These two Directors present resolved that 
 two Directors should form a quorum, and then pro- 
 ceeded to allot shares. The Court of Appeal decided 
 the two Directors had no power to appoint themselves 
 a quorum, and that the allotment was invalid. 
 
 "The Companies Act, 1900," imposed the following 
 restrictions as regards the first allotment of shares of 
 a Company : — 
 
 The Directors may not allot any of the share capital 
 of a Company offered for public subscription unless 
 the following conditions have been complied with : — 
 
 [a) The amount (if any) fixed by the Memorandum 
 
 or Articles of Association and named in the 
 prospectus as the minimum subscription upon 
 which the Directors may proceed to allot- 
 ment ; or 
 
 [b) If no amount is so fixed and named, then the 
 
 whole amount of the share capital so offered 
 for subscription 
 has been subscribed, and the sum payable on 
 
40 
 
 THE director's HANDBOOK. 
 
 THE ALLOTMENT OF SHARES. 
 
 41 
 
 application for the amount so fixed and named, or for 
 the whole amount offered for subscription, has been 
 paid to and received by the Company. 
 
 The amount so fixed and named, and the whole 
 amount referred to, has to be reckoned exclusively of 
 any amount payable otherwise than in cash. This 
 amount is referred to in "The Companies Act, 1900," as 
 the "minimum subscription." 
 
 The amount payable on application on each share 
 must be at least five per cent, of the nominal amount 
 of the share. 
 
 Should the above conditions not have been com- 
 plied with on the expiration of forty days after the 
 first issue of the prospectus, all money received from 
 applicants for shares has to be immediately repaid 
 to the applicants, but without any interest, and if any 
 of the application money is not repaid within forty-eight 
 days after the issue of the prospectus, the Directors 
 of the Company are jointly and severally liable to 
 repay the money with interest at the rate of five per 
 cent, per annum. 
 
 Any condition requiring or binding an applicant 
 for shares to waive compliance with these requirements 
 is void. 
 
 An allotment made by a Company to an applicant 
 for shares in contravention of the restrictions imposed 
 by the Act of 1900 is voidable, at the instance of the 
 
 tj 
 
 t\ 
 
 applicant, within a month after the holding ot the 
 statutory meeting of the Company but not later. It 
 is voidable even should the Company be in course 
 of being wound up. 
 
 Should any Director knowingly contravene, or per- 
 mit or even authorise the contravention of, any of the 
 provisions of ''The Companies xAct, 1900," with respect 
 to allotment, he is liable to compensate the Company 
 and the allottees respectively for any loss, damages, 
 or costs which the Company or the allottees may have 
 sustained or incurred thereby. Proceedings to recover 
 may not be commenced after the expiration of two 
 years from the date of allotment. 
 
 It is consequently most important that, when meeting 
 to consider the advisability of proceeding to allotment, 
 Directors should satisfy themselves that all the above 
 conditions have been complied with, and for this 
 purpose they should require a report from their Solicitor, 
 and should also, previous to the meeting, instruct the 
 Auditors, or some other Chartered Accountants, to 
 examine the Bankers' Pass Book with the applications 
 for shares, and report to the Board meeting whether 
 the " minimum subscription " has been reached. 
 
 In connection with the allotment, as in other matters, 
 Directors must remember that they are trustees for 
 the Company, and must allot the shares for the benefit 
 of the Company. When shares, therefore, are at a 
 premium, the Directors must not allot them to 
 
42 
 
 THE DIRFXTOR'S HANDBOOK. 
 
 THE ALLOTMENT OF SHARES. 
 
 43 
 
 If II 
 
 themselves or to their friends but must obtain the 
 premium for the company [Parker v. McKeii^ia). 
 
 The applications for shares, when received from 
 the bankers, should be filed, and the particulars entered 
 in a book, usually called the "Application for Shares 
 and Allotment Book." As great complications, re- 
 sulting in law suits, have frequently arisen through 
 this book not having been properly prepared, it is 
 desirable to instruct a Chartered Accountant to design 
 one, and to hand him the applications for shares, 
 together with the Bankers' Pass Book, so that the 
 particulars may be properly entered. 
 
 When the Board meet to allot the shares, this book 
 should be placed before them, the number of shares 
 allotted to each applicant should be entered by the 
 Chairman in the column provided for that purpose, 
 and then the Chartered Accountant or the Secretary, if 
 one has already been appointed, can send out the 
 letters of allotment to the successful applicants, and 
 the letters of regret to those to whom the Directors 
 have not made any allotment. The particulars of the 
 postage of these notices should be duly entered in 
 the "Application for Shares and Allotment Book." 
 
 Before proceeding to the allotment, the Directors 
 should ask to be shown any letters that may have 
 been received from applicants, so as to avoid allotting 
 shares to any who may have withdrawn their appli- 
 cations, or too many shares to those who may have 
 
 written requesting a smaller number of shares than 
 that contained in the formal application. 
 
 If any of the applications for shares contain 
 conditions which the Directors are not willing to, or 
 cannot, comply with, they should not make an allot- 
 ment in respect of these applications, as, unless the 
 conditions are satisfied, the allotment would not be 
 binding on the applicant. 
 
 Notwithstanding the fact that the Articles of 
 Association and the prospectus state the minimum 
 sum on which the Directors may proceed to an allot- 
 ment, it is absolutely in the power of the Directors, 
 when meeting to consider the proposed allotment, to 
 determine whether, although they may have obtained 
 the minimum subscription, they shall or shall not allot. 
 In the ev^ent of the whole capital offered for subscription 
 not being taken up, the Directors should carefully 
 consider as to whether the amount of the capital 
 subscribed is sufficient to justify them in proceeding 
 to an allotment. It is quite possible that, from criticisms 
 they may have read on the prospectus when published, 
 or from information obtained from any reliable 
 source, the Directors may have reason to doubt the 
 correctness of the statements placed before them when 
 the amount of " the minimum subscription " was fixed. 
 
 In any case, should the Directors have the 
 slightest doubt on the subject, they should have due 
 regard to their moral obligations, as it would be 
 
44 
 
 THE director's HANDBOOK. 
 
 THE ALLOTMENT OF SHARES. 
 
 45 
 
 distinctly improper for any Director to sanction an 
 allotment of shares unless he is fully satisfied that 
 the capital subscribed is sufficient to carry out 
 either all the objects for which the Company was 
 registered, or a sufficient number of them to yield 
 a profitable return to the shareholders on their 
 
 capital. 
 
 The Directors should not allow themselves to be 
 influenced in any way by representations made to them 
 by the promoter, that unless they proceed to an 
 allotment the money expended by him will be thrown 
 away, or by promises that after the first capital is taken 
 up it will be easier to obtain a further amount. The 
 Directors' duty should be exercised entirely in the 
 interest of those who have subscribed for the shares, 
 and they should be guided by that alone. 
 
 For the purpose of coming to a decision a proper 
 statement should be drawn up and placed before 
 the Board, showing on one side the amount of 
 capital subscribed, distinguishing the amount paid 
 up and the amount uncalled, having due regard 
 to the dates on which calls can be made, as, ot 
 course, if the Articles state that the calls can only be 
 made at certain interv^ds, these dates and amounts 
 should be carefully taken into consideration. On the 
 other side should be put the amount proposed to 
 be paid to the promoters or other persons, as authorised 
 by Section lo of "The Companies Act, 1900," and all 
 
 other estimated payments, present or future, and if the 
 Directors do not see their way to punctually discharge 
 the liabilities which would be binding on the Company 
 after the allotment, and leave a sufficient working 
 capital, they should absolutely decline to allot. 
 
 After arriving at this decision, the Directors should 
 be careful to arrange for the return of the money paid 
 with the applications to the proper owners. P^or this 
 purpose two at least of the Directors, or the number 
 prescribed by the Articles for the signing of cheques, 
 should attend at the Company's bankers', register 
 their signatures, obtain the necessary number of 
 cheques, and send them to each applicant. The 
 amount returned must be the full amount deposited, 
 without deduction of any kind for expenses ; these 
 must be borne entirely by the promoter. 
 
 The Directors who attend at the bank should take 
 the opportunity of informing the bankers of the failure 
 of the scheme, instruct them not to receive any more 
 applications for shares or deposits, and, when the 
 cheques issued to the applicants have been honoured, 
 to close the account. 
 
 Unless the proposed Directors of an inchoate 
 Company have been exceedingly careful, they are liable 
 to annoyances, and even pecuniary liability, after the 
 return of the subscriptions. The printers and other 
 tradesmen employed by the promoter are frequently his 
 personal friends, and, to oblige him, will perhaps send 
 
46 
 
 THE director's HANDBOOK. 
 
 THE ALLOTMENT OF SHARES. 
 
 47 
 
 |i 
 
 i 
 
 in their accounts to those whose names were on the 
 prospectus as Directors, demanding payment, and 
 threatening legal proceedings unless their claims are 
 
 settled. 
 
 Occasionally writs are issued, and those attacked 
 have no option but, at their own expense, to instruct 
 their solicitors to defend them ; but, as a rule, the 
 promoter and his friends, when they find their threats 
 are treated with contempt, and the proposed Directors 
 have been too careful to incur a legal liability, settle 
 the accounts among themselves, and the intended 
 members of the Board hear no more of the unsuccessful 
 
 project. 
 
 An application for shares, followed by a letter of 
 allotment or other communication from the Company 
 that an allotment has been made, constitutes a contract 
 from which neither the applicant nor the Company may 
 withdraw. The contract, however, is not completed, 
 and, therefore, not binding, should any terms or 
 conditions be introduced into the letter of allotment 
 differing from the terms of the prospectus or the form 
 of application, and in such a case the applicant may 
 withdraw {Barrett's Case). 
 
 The printed form of application issued with a 
 prospectus usually contains words giving the Directors 
 the option of allotting a less number of shares to 
 the applicant than he may apply for. In the absence 
 of such words the allotment of a less number of shares 
 
 than applied for would not constitute a binding contract, 
 and the applicant would be at liberty to withdraw {Ex 
 parte Roberts). 
 
 Where an applicant for shares in a Railway 
 Company received a letter of allotment marked "Not 
 transferable," it was held by the Court there was 
 a new term imported and therefore was no contract 
 [Duke V. Andreivs), 
 
 Letters of allotment must bear an impressed stamp 
 of one penny if the shares do not exceed the nominal 
 value of five pounds, and an impressed stamp of 
 sixpence if they exceed that nominal value. Any 
 Director who executes, grants, issues, or delivers out 
 any document chargeable with duty, including a 
 letter of allotment, before the same is duly stamped, 
 incurs by "The Stamp Act, 1891," a fine of twenty 
 pounds. 
 
 The letters of allotment should be sent out as 
 soon as possible after the allotment has taken place, 
 as, until the allotment has been communicated to 
 the applicant, the contract is not complete. In a case 
 where a person applied in writing for shares w^hich 
 were allotted to him by the Directors, and after the 
 allotment, but before it was communicated to him, 
 he withdrew the application, the Court decided he 
 was not a shareholder, as he had never become bound 
 by a completed contract to take the shares. 
 
 An allotment of shares to an applicant, and the 
 
 li 
 
48 
 
 THE director's HANDBOOK. 
 
 L 
 
 entry of his name on the Register of Members in respect 
 of these shares, is not sufficient to bind him. It is not 
 his duty to search the register to see whether the 
 allotment has been made or not. It is not necessary 
 he should be informed of the allotment in writing, but 
 there must be in writing, or verbally, or by conduct, 
 something to show the applicant that the Company 
 have responded to his offer to take shares. The 
 withdrawal also may be made orally, and need not 
 necessarily be in writing [Wtlson's Case). 
 
 Notice of withdrawal may be given orally to a 
 clerk in the registered office of the Company, should 
 the secretary be absent [Truman's Case). 
 
 It is not necessary that allotment be made of 
 all the shares offered for subscription at the same 
 Board meeting. So long as any shares are unissued 
 the Directors may entertain further applications and 
 make fresh allotments from time to time. 
 
 In a case where a Director received no notice of 
 allotment, but his name was advertised as a Director, 
 and he attended a meeting of Directors, he was held 
 by the Court to be a contributory in respect of the 
 shares, the Company having gone into liquidation. 
 
 If the Directors send out unstamped letters of 
 allotment, they should, on discovering the mistake, at 
 once send out others in their place properly stamped. 
 In the meantime the unstamped letter is sufficient to 
 complete the contract and bind the allottee, although 
 
 THE ALLOTMENT OF SHARES. 49 
 
 he may have repudiated his shares between the dates 
 of receipt of the unstamped and stamped letters of 
 allotment {\Vh?tley Partners^. 
 
 Directors should not under any circumstances know- 
 ingly allot shares to minors, as a minor can at any 
 time before or upon attaining full age repudiate the 
 transaction and require the amounts paid to be refunded 
 [Hamiltoti v. Vaughafi Sherrin Co.), 
 
 Where a married woman is an applicant for shares 
 it is prudent for the Directors to require her to pay 
 up the shares in full before allotment or that her 
 husband shall become a joint holder. 
 
I 
 
 50 
 
 tup: director's handbook. 
 
 DUTIES AFTER THE ALLOTMENT OF SHARES. 
 
 51 
 
 CHAPTER III. 
 
 DUTIES AFTER THE ALLOTMENT OF SHARES. 
 
 AFTER the allotment of shares has taken place, 
 the Directors should satisfy themselves that the 
 name of the Company is painted up at the front door 
 of the building in which the offices are situated, and 
 also outside the office door. The address of the offices 
 is also required to be registered at Somerset House, 
 and in the event of a Director wilfully authorising this 
 not being done he is liable to a penalty not exceeding 
 
 five pounds. 
 
 A seal should also be prepared, having the name 
 of the Company engraved in legible char^icters thereon, 
 and all bills of exchange, promissory notes, indorse- 
 ments, cheques, and orders for money or for goods, 
 purporting to be signed for or on behalf of the Company, 
 and all bills of parcels, invoices, receipts, and letters 
 of credit, must bear the name of the Company in 
 legible characters, as must also all notices, advertise- 
 ments, and other official publications. Any Director 
 authorising any of these things to be issued where 
 the name of the Company is not mentioned is liable 
 to a penalty of ;£50> and is also personally liable 
 
 to the holder of any bill of exchange, promissory note, 
 cheque, or order for money, or for goods to the extent 
 of the amount not paid by the Company. 
 
 The Directors of a Company were held personally 
 liable for the amount of a bill of exchange accepted 
 by them as Directors of the Company because, although 
 the word " Limited " appeared in the bill in one place, 
 the name of the Company was not correctly given in 
 either the draft or the acceptance [Atkins v. IVardlc). 
 
 Directors have also been held personally liable 
 where a bill of exchange contained more than the 
 correct name {Nass(m Steam Press v, Tyler), 
 
 Within one month after the allotment of shares 
 every Company is required to file with the Registrar 
 of Joint Stock Companies — 
 
 [a) A return of the allotments, stating the number 
 
 and nominal amount of the shares comprised 
 in the allotment, the names, addresses, and 
 description of the allottees, and the amount if 
 any) paid, or due and payable, on each share. 
 
 [b] In the case of shares allotted in whole or in 
 
 part for a consideration other than cash, a 
 contract in writing constituting the title of the 
 allottee to such allotment, together with any 
 contract of sale, or for services, or other con- 
 sideration in respect of which such allotment 
 was made, such contracts being duly stamped, 
 and a return stating the number and nominal 
 
 E 2 
 
52 
 
 THE DIRECTOR'S HANDBOOK. 
 
 amount of shares so allotted, the extent to 
 which they are to be treated as paid up, and 
 the consideration for which they have been 
 
 allotted. 
 If default is made in complying with these require- 
 ments, every Director of the Company who is knowingly 
 a party to the default is liable to a fine not exceeding 
 ^50 for every day during which the default continues. 
 In the meantime the Solicitor should be instructed 
 to prepare a form of share certificate, which should 
 then be submitted to the Committee of the Stock 
 Exchange, should a special settling-day be desired. 
 When the certificates have been printed, one should 
 be written out for each member, signed by two of the 
 Directors and Secretary, or as specially prescribed by 
 the Articles of Association, and sealed with the 
 Company's seal. A notice should then be sent to 
 each member, informing him his certificate is ready, 
 and that it will be forwarded to him on receipt by 
 the Company of the letter of allotment and bankers- 
 receipts. These, when returned to the office, should 
 
 be preserved. 
 
 Should there be more than one class of share, it is 
 desirable that the certificates should differ in appearance, 
 either in colour or size. It also desirable to print on 
 the certificate the respective rights of the holders of 
 the different classes of shares, also the amount paid 
 up on each share. 
 
 \ 
 
 l\ 
 
 DUTIES AFTER THE ALLOTMENT OF SHARES. 53 
 
 Until the Directors are satisfied that the Secretary- 
 is fully acquainted with his duties, including a know- 
 ledge of the requirements of the Acts of Parliament 
 relating to Companies, they should satisfy themselves 
 that the latter have been complied with, and that the 
 other arrangements as above indicated are carried 
 out in a business-like way. 
 
 It is of great importance that the books of a new 
 Company should be opened in a proper manner, and 
 it is now the usual custom to instruct a Chartered 
 Accountant to do this. The fee will, as a rule, be 
 saved very early in the Company's existence, more 
 especially where many transactions have to be 
 recorded, as, if the books are kept on a bad system, 
 a great amount of unnecessary detail will be found 
 in the books, necessitating the maintenance of a 
 larger staff than really necessary. 
 
 The Articles of Association of nearly all Companies 
 prescribe that the Directors shall cause true accounts 
 to be kept of all sums received and expended by the 
 Company, and of the credits and liabilities of the 
 Company, and there is a special clause in Table *' A " 
 (Sec. 78) directing this to be done. Even without these 
 clauses it is absolutely necessary the books should be 
 properly kept and written up to date, and for this 
 purpose it is now the usual practice for the Directors 
 to in.struct the Auditors, or some other Chartered 
 Accountant, to supervise the book-keeping department 
 
54 
 
 TKE director's HANDBOOK. 
 
 and report to them from time to time as to the 
 condition in which the accounts are kept. 
 
 This remark applies to both the statistical and 
 financial books, the former consisting, as a rule> of 
 books prescribed by the Acts of Parliament, and which 
 it is the duty of a Director to see are properly 
 
 kept up. 
 
 Every Company registered under the Act of 1862 
 
 is required to keep in one or more books a register 
 
 of its members, containing the following particulars:— 
 
 (i) The names, addresses, and occupations (if 
 
 any) of the members, with the addition, in 
 
 the case of a Company having a capital 
 
 divided into shares, of a statement of the 
 
 shares held by each member, distinguishing 
 
 each share by its number, and the amount 
 
 paid or agreed to be considered as paid on 
 
 the shares of each member. 
 
 (2) The date at which the name of any person 
 
 was entered in the register as a member. 
 
 (3) The date at which any person ceased to be 
 
 a member. 
 
 A Director knowingly and wilfully authorising a 
 contravention of the section of the Act containing 
 this provision is liable to a penalty not exceeding 
 five pounds for every day during default. 
 
 A Register of Mortgages is also required to be kept, 
 in which is to be entered all mortgages and charges 
 
 >', 
 
 DUTIES AFTER THE ALLOTMENT OF SHARES. 55 
 
 specifically affecting the property of the Company, 
 together with a short description of the property, the 
 amount of charge created, and the names of the 
 mortgagees or persons entitled to such charge. 
 
 Directors wilfully authorising the omission of an 
 entry of any property mortgaged or charged will 
 incur a penalty not exceeding fifty pounds. 
 
 Every mortgage or charge created by a Company 
 after the ist January, 1901, including those created for 
 the purpose of securing an issue of debentures, has to 
 be registered with the Registrar of Joint Stock Com- 
 panies, who is required to keep, with respect to each 
 Company, a register of all such mortgages and charges. 
 A certificate signed by the Registrar of each regis- 
 tration is forwarded to each Company, and Directors 
 must be particular that a copy of this certificate is 
 endorsed on every debenture or certificate of debenture 
 stock which is issued by the Company, and the 
 payment of which is secured by the mortgage or 
 charge so registered. 
 
 If any Director or other person knowingly 
 authorises or permits the delivery of any debenture 
 or certificate of debenture stock required by "The 
 Companies Act, 1900," to be registered, without a copy 
 of the certificate of the Registrar being endorsed 
 upon it, he is, without prejudice to any other liability, 
 liable on summary conviction to a fine not exceeding 
 one hundred pounds. 
 
56 
 
 THE DIRECTOR'S HANDBOOK. 
 
 Every Company is required to k(M'p a copy of every 
 instrument creating- any mortgag-e or charge requiring 
 registration under "The Companies Act, looo/' at the 
 registered office of the Company. Each copy is to be 
 open to inspection by the shareholders and creditors 
 on piiyment of a fee, not to exceed a shilling, for each 
 inspection. In the case of a series of uniform deben- 
 tures, a copy of one debenture satisfies this requirement. 
 
 After the allotment of shares has taken place, the 
 Company should take formed possession of all the 
 property assigned to it, and the Directors should see 
 that it is under their control. 
 
 In appointing the officials, the Directors should 
 be careful to ascertain, before entering into any 
 agreements, that they are selecting the best men 
 they can obtain for the special position they are to 
 occupy, halving regard, of course, to the salary paid. 
 Frequently Directors look upon appointments of this 
 nature as a perquisite for their connections and 
 friends. If qualified persons are nominated there can 
 be no objection to this, as Directors have a right to 
 surround themselves with persons in whom they have 
 confidence; but it is clearly the duty of every Director 
 to see that the interests of the shareholders are not 
 injured by appointments being conferred on incom- 
 petent persons merely to oblige a brother Director. 
 
 The Secretary and Manager should both be 
 persons of experience, and have had special training 
 
 ' 
 
 DUTIES AFTER THE ALLOTMENT OF SHARES. 57 
 
 for their duty. A Manager is always to be preferred 
 to a Managing Director; in fact, the latter is, as a 
 rule, a most undesirable official, as the staff of a 
 ('ompany should be the servants of the Directors, who 
 should be free to discuss their conduct at a Board 
 meeting. 
 
 A Managing Director has a right to sit at the 
 Board, and cannot be required to leave the room ; 
 hence any question affecting his conduct or capacity 
 cannot be discussed except in his presence — a most 
 awkward proceeding, and one frequently shirked. 
 It often happens, therefore, that, owing to a natural 
 disinclination of a Board to discuss a matter personally 
 affecting one of their body, many Companies have 
 been ruined through an incompetent Managing 
 Director being retained in office. 
 
 Frequently, in order to secure the services of an 
 efficient man, arrangements are entered into by 
 which he is guaranteed employment for a certain 
 number of years at a fixed salary. Great care 
 should be taken to ascertain the antecedents of any 
 person proposed to be engaged on terms of this 
 nature, as, of course, a contract can only be broken 
 through absolute misconduct, or at an expense to 
 the Company in the shape of compensation. 
 
 A Company is not allowed to commence any 
 business or exercise any borrowing powers unless — 
 
 (a) Shares held subject to the payment of the 
 
58 
 
 THE DIKKCTUR'S HANDBOOK. 
 
 DUTIES AFTER THE ALLOTMENT OF SHARES. 59 
 
 whole amount thereof in cash have been 
 allotted to an amount not less in the whole 
 than the minimum subscription. 
 [b] Every Director of the Company has paid to the 
 Company on each of the shares taken or con- 
 tracted to be taken by him, and for which 
 he is liable to pay in cash, a proportion equal 
 to the proportion payable on application and 
 allotment on the shares offered for public 
 subscription. 
 {c) There has been filed with the Registrar of 
 Joint Stock Companies a statutory declaration, 
 by the Secretary or one of the Directors, in 
 the form prescribed by the Board of Trade, 
 that these conditions have been complied with. 
 As soon as this statutory declaration has been 
 filed, the Registrar will issue a certificate that the 
 Company is entitled to commence business. 
 
 If any Company commences business or exercises 
 borrowing powers before these conditions have been 
 fulfilled, every Director or other person who is 
 responsible for the contravention is, without prejudice 
 to any other liability, liable to a fine not exceeding 
 fifty pounds for every day during which the contra- 
 vention continues. 
 
 'J'hese conditions do not apply to a Company where 
 there has not been an invitation to the public to 
 subscribe for its shares. 
 
 li 
 
 Any contract made by a Company before the date 
 at which it is entitled to commence business is pro- 
 visional only, and is not binding on the Company 
 until this date, when it becomes binding. 
 
 It is frequently considered desirable to vary the 
 contracts entered into between the vendor and the 
 Company, or between other persons and the Company. 
 One cause for this is, when sufficient capital has not 
 been subscribed, to enable the programme to be 
 carried out, and leave sufficient working capital. 
 Directors should not, of course, find themselves in a 
 difficulty of this nature, as they ought never to allot 
 the shares until they are satisfied the capital sub- 
 scribed is sufficient for all purposes. Should this, 
 however, happen, they must make the best arrange- 
 ment they can with the vendor, and, frequently, sooner 
 than let the scheme fall through, a vendor will 
 consent to a modification of the terms of the agree- 
 ment with him, and thus prevent a catastrophe. 
 
 Directors, however, contemplating a variation of 
 any contract referred to in the prospectus, must re- 
 member that such contract can only be varied subject 
 to the approval of the statutory meeting of share- 
 holders. Before, however, they come to any arrange- 
 ment of this nature with a vendor or other person, 
 the Directors should consult their solicitors, and, if 
 necessary, be advised by counsel. 
 
 The solicitors should, in fact, be consulted by the 
 
6o 
 
 THE director's HANDBOOK. 
 
 DUTIES AFTER THE ALLOTMENT OF SHARES. 6 1 
 
 Directors in almost every step they take during the 
 early days of a Company's existence. Directors are 
 entitled to this protection at the Company's expense, 
 and with many Boards it is an invariable practice 
 to have the solicitor in attendance at all Board meet- 
 ings. 
 
 As a rule the vendor of a business to a Company 
 makes all the arrangements necessary with the pro- 
 moter, if one is employed, but where the Directors 
 have dealings direct with a promoter they must be 
 exceedingly careful, before making any payment to 
 him, to satisfy themselves such payments are proper 
 and legal. 
 
 In a case where a person, acting as agent of the 
 Directors and on behalf of the Company, had paid 
 certain preliminary formation expenses, in respect of 
 which the Directors had drawn a cheque in his favour 
 for a lump sum without investigation of the details, 
 the Directors were held liable to repay to the Com- 
 pany the amount of the cheque, less the sums actually 
 disbursed by their agent which ought to have been 
 paid by the Company (Liverpool Household Stores 
 A ssoctalion, L united) . 
 
 Should the Directors of a new Company wish a 
 special settling-day appointed on the Stock Exchange 
 for transactions in its shares, or for a quotation of 
 the shares in the Official List, they should consult a 
 stockbroker as to the best means of effecting this object. 
 
 The Committee of the London Stock Exchange will 
 appoint a special settling-day for transactions that may 
 have taken place in the shares of a new Company, 
 provided that no allegation of fraud be substantiated, 
 that there has been no misrepresentation or suppres- 
 sion of material facts, that sufficient scrip or shares are 
 ready for delivery, and that no impediment exists to 
 the settlement of the account. 
 
 The Secretary of the Share and Loan Department 
 of the Stock Exchange has to give three days' 
 public notice of any application for a special settling- 
 day previously to the application being submitted to 
 the Committee. 
 
 Bargains in the shares of a new C!ompany are 
 contingent on the appointment of a special settling- 
 day, and the effect of the refusal of a settlement cancels 
 such bargains on the Stock Exchange. A refusal, 
 however, never takes place unless a substantial reason 
 exists. The Committee of the Stock Exchange does 
 not, however, recognise dealings in letters of allot- 
 ment. 
 
 The Committee will not fix a special settling- 
 day for bargains in shares or securities issued to 
 the Vendors, credited as fully or partly paid, until 
 six months after the date fixed for the special settle- 
 ment in the shares or securities subscribed for by 
 
 the public. 
 
 This rule does not, however, necessarily apply to 
 
 ( • 
 
62 
 
 THE director's HANDBOOK. 
 
 reorganisation or amalgamation of existing Com- 
 panies, or to cases where no public shares are issued, 
 or to cases where the Vendors take the whole of 
 the shares issued for cash. 
 
 The Committee may order the quotation of any 
 class of the shares or securities of a new Company 
 in the Official List, provided it be of sufficient mag- 
 nitude and importance, and that three days' public 
 notice of the application has been given. 
 
 The Committee also require that the following 
 documents have been deposited with the Secretary of 
 the Share and Loan Department : 
 
 (a) The Prospectus. 
 
 (3) The Certificate of Incorporation, Act of Parlia- 
 ment, or other similar document. 
 
 {c] The Articles of Association, and, in the case 
 of a Debenture issue, the Trust Deed, 
 if any. 
 
 [d] The original Applications for Shares or 
 
 Securities. 
 
 (e) The Allotment Book for Shares or Securities, 
 
 with a Summary, signed by the Chairman and 
 
 Secretary. 
 (/) A copy of the Letter of Allotment. 
 (g) A specimen of the Certificate or Bond. 
 (//) Certified copies of Contracts and Agreements. 
 (/*) Notarially certified translations of Concessions, 
 
 Deeds, and Agreements. 
 
 DUTIES AFTER THE ALLOTMENT OF SHARES. 63 
 
 [k) A Certificate, verified by the statutory declaration 
 of the Chairman and Secretary, stating : — 
 (i) the number of shares and amount of securities 
 applied for by and unconditionally allotted 
 to the public. 
 
 (2) The amount of deposits paid thereon. 
 
 (3) That such deposits are absolutely free from 
 
 any lien. 
 
 (4) That the Certificates or Bonds are ready 
 
 for delivery. 
 
 (5) That the purchase of the properties has been 
 
 completed, and the purchase money paid. 
 
 (6) That no impediment exists to the settlement 
 
 of the account. 
 (/) The Bankers' Pass Book. 
 (m) A Certificate from the bankers, stating the 
 
 amount of deposits received. 
 (n) Where fully-paid shares have been granted in 
 lieu of money payments, 
 (i) An Official Certificate that the contract pro- 
 viding for the issue of such shares has 
 been filed with the Registrar of Joint 
 Stock Companies. 
 (2) A Statement as to the date on which such 
 shares were allotted. 
 The Directors must also show that the following 
 requirements have been complied wdth : — 
 
 That the prospectus has been publicly advertised 
 
64 
 
 THE DIRECTOR S HANDBOOK. 
 
 and agrees substantially with the Articles of Association, 
 and contains the Memorandum of Association ; that 
 it provides for the issue of not less than one-half of 
 the authorised capital and for the payment of ten per 
 cent, upon the amount subscribed, and sets forth the 
 arrangements for raising the capital, whether by shares 
 fully or partly paid up, with the amounts of each 
 respectively, or by an issue of debentures ; and also 
 states the amount paid or to be paid, in money or 
 otherwise, to concessionaires, owners of property, or 
 others on the formation of the Company, or to con- 
 tractors for works to be executed, and the number 
 of shares, if any, proposed to be conditionally 
 allotted. 
 
 If offering debentures or debenture stocks, how- 
 ever designated or denoted, the prospectus must 
 state all terms, conditions, and circumstances under 
 which such are or may become redeemable or re- 
 payable. 
 
 That two-thirds of the whole nominal capital 
 proposed to be issued have been applied for and 
 unconditionally allotted to the public 'shares reserved 
 or granted in lieu of money payments to concessionaires, 
 owners of property, or others not being considered 
 to form part of such public allotment), that the Articles 
 of Association restrain the Directors from employing 
 the funds of the Company in the purchase of its own 
 shares, and that a member of the Stock Exchange is 
 
 DUTIES AFTER THE ALLOTMENT OF SHARES. 65 
 
 authorised by the Company to give full information 
 as to the formation of the undertaking, and be able 
 to furnish the Committee with all particulars they may 
 require. 
 
 A Company issuing, or promising to issue, new 
 shares within twelve months after the first settling-day 
 appointed by the Committee, unless under special cir- 
 cumstances, is liable to exclusion from the Official List. 
 
 F 
 
66 
 
 THE DIRFXTOR'S HANDBOOK. 
 
 CHAPTER IV. 
 
 BOARD MEETINGS. 
 
 1^11 E ordinary business of a Company is transacted 
 by its Manager, Secretary, and the staff working 
 under them, the Directors only meeting periodically for 
 the purpose of receivdng reports from the officials, 
 discussing and deciding upon important matters 
 brought before them, and for directing and superin- 
 tending the ordinary financial business of the 
 Company. 
 
 The number of meetings held by a Board varies 
 according to the nature and extent of the Company's 
 business. In some cases it is necessary to hold a 
 Board meeting every week, in some once a fort- 
 night, while the business of some Companies only 
 require the Directors should meet once a month. 
 
 It is customary when the Directors of a new 
 Company first meet for them to decide upon a day 
 of the week or month as the one most convenient 
 for the majority of the Board to attend, and arrange 
 for it to be the day for the ordinary meetings of the 
 Board. 
 
 BOARD MEETINGS. 
 
 67 
 
 Although the day may be thus settled, it is the 
 custom for the Secretary to forward to each Director, 
 a few days previous to each meeting, a notice of the 
 meeting, and this notice should be accompanied by 
 an agenda paper. When any business of unusual 
 importance is to be brought before the meeting, the 
 attention of the Directors should be specially called 
 to it in this paper. 
 
 Reasonable notice must be given to each Director 
 of Board meetings. In the case of a Company which 
 was inviting applications for preference shares it was 
 resolved, at a meeting of all the Directors, five in 
 number, not to allot till 14,000 shares w^ere applied 
 for; at a meeting of two (a quorum of) Directors, held 
 shortly afterwards, it was resolved that the previous 
 resolution be cancelled, and that the shares then 
 applied for, about 3,000, should be allotted. The 
 meeting was held at two o'clock, on a few hours' 
 notice to two of the Directors, who did not attend, 
 of whom one did not receive his notice till next day, 
 and the other gave notice he could not attend till 
 three; the fifth Director was abroad, and no notice 
 was sent to him. The Court held the allotments 
 made were void. 
 
 A number of Directors, even although they con- 
 stitute a majority, have no power to act at a 
 meeting of which notice has not been given to the 
 whole body {Portuguese Coppei' Ahnes). 
 
 F 2 
 
68 
 
 THE director's HANDBOOK. 
 
 Directors of a Company, being the select managing 
 body, can at any meeting of the Board deal with 
 all affairs of the Company then requiring attention, 
 whether ordinary or not, and previous notice of the 
 special business is not a necessary condition of the 
 proceedings being valid {I.a Compagnic dc Mayville 
 V. Whitley). 
 
 The office of a Director is vacated if he does 
 not within two months from the date of his appoint- 
 ment, or within such shorter time as may be fixed 
 by the regulations of the Company, obtain his 
 qualification, or if, after the expiration of such period, 
 or shorter time, he ceases at any time to hold his 
 qualification. 
 
 The Articles also, as a rule, prescribe that the 
 office is vacated in certain events, such as the 
 Director becoming bankrupt, or accepting an office 
 of profit under the Company, or being absent from 
 the Board meetings for a certain period. 
 
 It is the duty of each Director not only to see 
 that he does not vacate his own seat by failing in 
 any of the conditions required of a qualified Director, 
 but also to satisfy himself that each of his co- 
 Directors fulfil the required conditions, and to refuse 
 to allow any unqualified person from sitting and 
 voting as a Director. 
 
 The Articles of Association frequently contain a 
 clause that the office of a Director is vacated should 
 
 BOARD MEETINGS. 
 
 69 
 
 he absent himself for a certain period. It has been 
 held that absence may be sufficient to vacate the 
 office if no other circumstances are shown but that; 
 if it is shown that the absence is involuntary, it 
 cannot be said that the Director had absented him- 
 self. The more reasonable construction is that the 
 article means that the office is vacated if the Director 
 voluntarily or deliberately absents himself for the 
 period mentioned [Li re Lo7idon and Northetn Bank). 
 
 The Articles of Association usually provide that 
 a Director shall vacate his office if he become 
 bankrupt; this clause, however, does not prevent the 
 appointment of a bankrupt to be a Director [Dawson 
 V. African Co7isolidated Land and Tradijig Co>,. 
 
 The Articles usually prescribe the quorum, or leave 
 it to the Board to fix their own quorum. In the 
 latter case the fixing of the quorum should be on 
 the agenda paper of the first Board meeting of a 
 new Company. 
 
 Should a quorum not be present at a Board 
 meeting, it is advisable not to transact any business, 
 as it would not be valid ; but, if the transaction of 
 the business is imperative, it should be brought up 
 at the following Board meeting for special confir- 
 mation, but the Directors at the first meeting, acting 
 illegally, necessarily do so at their own risk, and 
 they should be careful only to act in the absence 
 of a quorum when they are satisfied their acts are 
 
70 
 
 THE director's HANDBOOK. 
 
 ijo evidently for the benefit of the Company that 
 they will be endorsed as a matter of course by their 
 co-Directors at the following Board meeting. 
 
 Until the number of the quorum has been fixed, a 
 majority of the whole Board must attend to form a 
 quorum [York 7'ramways Co. v. Willows). 
 
 Every Director has a right to be present at every 
 Board meeting, and, therefore, the Directors as a body 
 have no power to exclude anyone from their meetings. 
 An excluded Director can obtain an injunction 
 restraining his continued exclusion [Pulbrook v. 
 Richmond Consolidated Mining Co.). 
 
 A Director cannot be compelled to attend to his 
 duties unless the Articles prescribe the amount of time 
 he shall devote to the Company, and a Company 
 cannot prevent one of its own Directors from becoming 
 a Director of a rival Company [London and Mashona- 
 land Co. v. Neiv Alaskonaland Co.). 
 
 A book, called the '' Directors' Attendance Book," is 
 usually provided, in which the Directors sign their 
 names on entering the Board-room. From this book 
 the attendances are entered into the Minute Book, 
 and it is also useful in arriving at the amount of the 
 fees periodically payable to each Director, when they 
 are divisible according to the attendances of the 
 Directors. 
 
 Every Company is obliged to keep a Minute 
 Book, in which all resolutions and proceedings are 
 
 BOARD MEETINGS. 
 
 71 
 
 to be duly entered, and any minute, if purporting to be 
 signed by the Chairman of the meeting at which 
 resolutions were passed, or by the Chairman of the 
 next succeeding meeting, is received as evidence in 
 all legal proceedings. 
 
 The same remark applies to shareholders' meetings, 
 for which a separate Minute Book should be kept. 
 
 The minutes of the Board meetings should 
 commence with the date, to be followed by the names 
 of those Directors and officers present. The business 
 transacted at the meeting should then follow, every 
 discussion of any importance, and the result of every 
 resolution and amendment being recorded, also the 
 names of their proposers and seconders. If there is a 
 duly-appointed Chairman of the Company, he should 
 always preside at Board meetings when present ; if not 
 present, the Vice-Chairman (if any) should preside ; or, 
 failing either, the Board meeting should commence by 
 a Director being voted to the chair, to preside for that 
 particular meeting. 
 
 The business then commences by the minutes ot 
 the preceding meeting being read; after which the 
 Chairman should put the question, '' Is it your pleasure 
 these minutes be signed as correct r " If the answer be 
 in the affirmative, the Chairman should then sign the 
 minutes ; if any objection be raised, the only point for 
 discussion is whether the minutes are insufficient or 
 incorrect. 
 
72 
 
 THE director's HANDBOOK. 
 
 BOARD MEETINGS. 
 
 73 
 
 Should a Director allege there is an omission from 
 the particulars entered of what took place at the 
 previous meeting, it can be discussed as to whether 
 he be correct or not, and a decision come to, but no 
 alteration can be made in the minutes so as to vary 
 the effect of or expunge any resolution carried at the 
 previous meeting, for the minutes are merely records 
 of facts, and the only way to annul the effect of 
 resolutions passed at a Board meeting is to pass fresh 
 ones at a subsequent meeting, after due notice has been 
 given to every Director. 
 
 Mere presence at a Board meeting, at which minutes 
 setting forth resolutions relating to a wrongful act are 
 passed, wall not create liability in one who takes no part 
 in the wrongful act [Lands Allotment Co.). 
 
 The Secretary should then announce the balance at 
 the bankers', place before the Directors the Bankers' 
 Pass Book, also a statement reconciling this balance 
 with that shown in the Cash Book. 
 
 If the Company be a trading one, stock sheets 
 should be produced, also statements showing the 
 turn-over or business done since the preceding 
 meeting, and, of course, any further details the 
 Directors may require to be placed before them. 
 
 Every Director should have his Agenda Paper 
 with him ; on this he should make notes, and it is 
 useful to have these notes with him at the following 
 meeting, so that he may compare them with the 
 
 
 J 
 
 minutes and satisfy himself that the business tran- 
 sacted has been properly recorded by the Secretary. 
 
 Where the business of a Company requires the 
 frequent attendance of its Directors, it is the practice 
 to divide the Board into Committees. This, however, 
 must be authorised by the Articles, as otherwise the 
 Board may not delegate any of its powers to a committee 
 iHinvarirs Case). 
 
 Committees arrange their own time for meeting, 
 keep their own Minute Book, and report their tran- 
 sactions to meetings of the full Board. In Banking, 
 Insurance, and other large Companies, one or more 
 Directors are usually in attendance every day, for the 
 purpose of signing cheques and transacting other urgent 
 business. A committee may consist even of a single 
 Director [laurine Co.). 
 
 All transfers of shares should be placed before the 
 Board. In the absence of any special restrictions in 
 the Articles of Association, shareholders have a right 
 of disposing of and transferring their shares without 
 the consent of the Directors, provided this is done 
 bond fide. 
 
 For example : Directors have no power to refuse 
 to register transfers, should they know a holder is 
 transferring his shares to nominees, so as to secure, 
 under the Company's regulations, a maximum of voting 
 power at a pending meeting of shareholders [Pender v. 
 Lushingto7i), 
 

 74 
 
 THE director's HANDBOOK. 
 
 In a case where a shareholder executed a transfer 
 to a person who gave as his address one where he was 
 only an occasional visitor, aiul the Directors, who had 
 not, by the Articles of Association, any discretion as 
 to accepting a proposed transferee, refused to register 
 the transfer on the ground that the transferee's address 
 was a wrong one, it was decided by the Court the 
 Directors were bound to register the transfer, although 
 it was admitted, on the one hand, that the transferor 
 intended to part with the entire interest in the shares, 
 and, on the other, that he executed the transfer with 
 the intention of escaping liability [Weston's Case). 
 
 In another case, where the Directors had not 
 power given them by the Articles of Association to 
 refuse transfers, it was held by the Court, on the 
 transferor and transferee deposing that no trust or 
 benefit was reserved for the transferor, that a transfer 
 was valid, although the transferee was not possessed ot 
 any means, and the transfer contained a false de- 
 scription and address of the transferee, and purported 
 to be for valuable consideration, whereas none was 
 paid. 
 
 On the other hand, where a shareholder had 
 presented a petition to wind up a Company, and the 
 Directors, in order to prevent inquiry, had bought off 
 the shareholder by transferring his shares to a nominee 
 of their own, the Court decided, on the Company being 
 wound up two years afterwards, that the transfer had 
 
 
 
 BOARD MEETINGS. 
 
 75 
 
 not been a bond fide one, and that the transferor was 
 liable as a contributory {Eyre's Case). 
 
 The Court also came to the same decision in 
 another case, where some shareholders threatened 
 proceedings, and the Directors agreed they should 
 be allowed to transfer their shares on paying the 
 Company a sum, out of w^hich a claim of one of the 
 Directors against the Company should be satisfied. 
 
 The rule that Directors who have power to refuse 
 to register a transfer of shares are not bound to disclose 
 their reasons for refusing, if they have considered the 
 question and have acted bond fide, applies to cases 
 where their power is limited to particular grounds 
 for refusal as well as to cases where their power is 
 absolute (/// re Coalport China Co.). 
 
 The Articles of Association frequently contain a 
 clause prohibiting transfers from being registered, 
 after a call has been made, until the sum has been 
 paid on the shares proposed to be transferred. This 
 clause should be strictly acted upon by Directors, 
 and it also appears that they ought to exercise it 
 after a call has been proposed, although not actually 
 made. 
 
 At a meeting of Directors the propriety of making 
 a call was discussed, when a shareholder who was 
 present at the meeting induced the Directors to 
 postpone the consideration of the matter. He then, 
 without informing the Directors of his intention, 
 
76 
 
 THE director's HANDBOOK. 
 
 transferred his shares to a pauper. Six days after 
 the meeting the call was made, and the Directors 
 refused to register the transfer. The Court decided 
 the Directors had acted rightly, and refused to rectify 
 the register. 
 
 It is the duty of the Directors to refuse to register 
 transfers when the Company is on the eve of liquida- 
 tion, or if the facts are such as that the rights of 
 creditors have, in fact, intervened, although the 
 winding up has not commenced. 
 
 Directors may, however, refuse a transfer made 
 with some reservation of rights to the transferor 
 [Battie's Case). 
 
 Directors should also refuse to transfer shares not 
 fully paid to an infant, and also to a person of 
 unsound mind. 
 
 When Directors have, after proper deliberation, or 
 acting to the best of their judgment, approved a 
 transfer, they will not be held responsible for any 
 loss which may arise from accepting an unsubstantial 
 transferee [Faure Electric Accumulator Co.). 
 
 When the Directors have power of rejecting 
 proposed transfers, they must exercise it reasonably. 
 
 A notice of any trust, expressed, implied, or 
 constructive, may not be entered in the register. 
 Therefore, when trustees purchase shares in a Com- 
 pany, the Directors should enter their names alone 
 on the register, so as to hold them personally liable 
 
 BOARD MEETINGS. 
 
 77 
 
 to the Company for calls, as though the shares were 
 their own private property. 
 
 The Directors, however, are bound to regard a 
 notice by a cestui que trust not to pay dividends 
 to his trustees, and they should retain the dividends 
 until they are satisfied to whom they are rightly 
 payable. 
 
 An executor is in some respects different from a 
 trustee, for he is a representative character, and if 
 he merely intimates to the Company his title as 
 executor in order to claim his right as legal personal 
 representative, and makes or gives no request or 
 authority to register his name as a shareholder, he 
 need not become personally liable. The Directors, 
 however, should only allow him a reasonable time 
 to hold the shares in this capacity. 
 
 A transfer, after it has been carefully scrutinised 
 in the office, as also the certificate of shares accom- 
 panying it, should be confirmed by the Directors 
 at the first meeting after it has been received, and 
 it should be at once registered, otherwise there is 
 an unnecessary delay within the meaning of the 35th 
 Section of the Act of 1862, which entitles a person 
 aggrieved to apply to the Court for an order that 
 the register may be rectified, and if the Court be 
 satisfied that the applicant has suffered damage the 
 Company may be compelled to pay such damage 
 and the costs incurred. 
 
78 
 
 THE DIRFXTOR'S HANDBOOK. 
 
 Directors should, however, for the protection ot 
 the Company, before issuing" the new certificate to 
 the transferee, send a notice to the transferor that 
 a transfer of his shares, purporting to have been 
 executed by him, has been lodged at the Company's 
 office for registration, and that, unless he informs 
 them by return of post this is not in order, the 
 shares will be registered in the name of the trans- 
 feree. This notice, however, does not protect the 
 Company should the Directors act upon a forged 
 transfer [Barton v. L. & N,IV. Raihvay Co.). 
 
 After transfers have been passed by the lioard, 
 fresh certificates have to be made out and issued 
 and the old ones cancelled. In small Companies, 
 when the office work is almost entin^ly und«^r the 
 control of the Secretary, it is very desirable one of 
 the Directors should ascertain that the numerical 
 numbers of the shares on the new certificates coincide 
 with the numerical number of the shares on the old 
 certificates. He should then cancel the old certificates, 
 either by stamping them *' Cancelled" or else by 
 tearing off or destroying in some other way the 
 signature on the old certificate. 
 
 In the case of large Companies, where the transfers 
 are very numerous, the Board can only satisfy them- 
 selves that there is a proper office check on the 
 officials who have the charge of the share certificate 
 books. Many Boards, however, now employ the 
 
 BOARD MEETINGS. 
 
 79 
 
 Auditors or some other Chartered Accountant to 
 periodically check the issue of new certificates against 
 the old ones returned to the Company. 
 
 The duty of examining and checking share certi- 
 ficates may, as a rule, be properly left to the 
 Secretary, in which case a Director is not estopped 
 from denying the accuracy of a certificate passed at 
 a Board meeting at which he was present. It is, 
 however, doubtful whether the same rule applies to a 
 Director who signs a share certificate [Dixon v. 
 Kcnnaway & Co.). 
 
 When the shares are not fully paid up, calls can 
 be made upon the holders when further capital is 
 required, subject to the Articles of Association and 
 to the conditions upon which the shares were origi- 
 nally issued. The Directors are the proper judges as 
 to whether a call is necessary, and the Court will 
 not interfere with their discretion [Bailey v. Birken- 
 head Railway Co.). 
 
 The call must, however, be made for the benefit 
 ot the shareholders, and not for some purpose of the 
 Directors, otherwise the Court will interfere, the powers 
 of the Directors in respect of calls being fiduciary 
 [Gilbert's Case). 
 
 Calls upon shares should always be made formally 
 at a Board meeting, and a resolution passed, stating 
 the amount of the call on each share and the date on 
 which it is payable. The notice to the shareholders 
 
8o 
 
 TIIK director's handbook. 
 
 should always contain the place where payment is 
 to be made, and a statement that all calls unpaid 
 on the day named shall bear interest at a rate not 
 exceeding th(^ limit prescribed by the Articles from 
 that date until payment. 
 
 The date on which the call is to be paid must, 
 of course, be a reasonable time after the call has 
 been made ; it is usually prescribed in the Articles of 
 Associ^ition. Table *' A " of "The Companies Act, 
 1862," requires that twenty-one days' notice shall be 
 given of each call, and this is the usual period named 
 in the Articles. 
 
 A call made by Directors not duly appointed, at 
 a time when the number of Directors has fallen 
 below the minimum prescribed by the Articles of 
 Association, or by such a number of persons as does 
 not constitute a quorum, is invalid, but a call made 
 at a meeting at which the necessary quorum of 
 Directors was not present, and confirmed when a 
 quorum was present, has been held by the Court to 
 be good [Austin'' s Case). 
 
 A call made by Directors appointed at a meeting 
 irregularly summoned is also valid [Br Hon Medical 
 Association v. Jones). 
 
 It is very necessary the regulations of the Company 
 should be strictly complied with in making a call, as, 
 frequently, legal proceedings have to be taken to 
 enforce payment, and a defaulting shareholder 
 
 BOARD MEETINGS. 
 
 81 
 
 might, in order to gain time, put the Company to 
 unnecessary expense by being able to raise successfully 
 technical objections to the manner in which the call 
 was made and notices of the call issued. 
 
 Directors have a perfect legal right to make a 
 call, although the prospectus may have contained 
 a statement that no further calls were contemplated ; 
 and, should the prospectus have stated that it was not 
 intended to make calls beyond a certain amount, the 
 Directors, nevertheless, have power to make such calls. 
 
 The Articles of Association usually contain a 
 clause giving the Directors power to receive calls 
 in advance, and where there are not special Articles 
 the Directors are so empowered by Table " A." This 
 is a fiduciary power which must be exercised bond 
 fide by the Directors, and not for their own interests. 
 In a case where the Directors paid into the Company's 
 bank the amount remaining uncalled on their shares, 
 and on the same day appropriated it towards their 
 fees, the Court held there had not been a bond fide 
 payment of the calls in adv^ance, and that the Directors 
 remained liable. 
 
 A call is deemed to have been made at the 
 time when the resolution of the Directors authorising 
 the call was passed. 
 
 A resolution for a call to be valid must state 
 not only the amount of the call, but also the time 
 at which it is to be paid. Thus, where the Directors 
 
82 
 
 THE director's HANDBOOK. 
 
 of a Company passed a resolution for a call, and 
 the resolution fixed the sum per share to be called 
 up, but left the date at which it was to be paid in 
 blank, and some time afterwards a resolution was 
 passed fixing the date for payment, and notices of the 
 call were sent to the shareholders, the Court held there 
 was no proper call made until the second resolution 
 fixing the date of payment, and the second resolution 
 did not, in point of date, relate back to the first. 
 
 After calls have been paid, the certificates of 
 shares should be called in and endorsed with a 
 statement of the fact, or else new certificates should 
 be issued in their place. In the latter case, the old 
 certificates should be cancelled in the presence of a 
 Board meeting, or of the Directors who may happen 
 to sign the new certificates. 
 
 It is desirable that the execution of agreements, 
 contracts, and all documents of this description should 
 take place at a Board meeting. If the nature of the 
 business requires a number of contracts executed, 
 this would be impossible; but any documents binding 
 on the Company, and signed at other times than at 
 a Board meeting, should be formally reported to the 
 following Board. 
 
 Contracts on behalf of a Company may be made 
 as follows, and may in the same manner be varied 
 or discharged : — 
 
 'i.) Any contract which, if made between private 
 
 BOARD MEETINGS. 
 
 S3 
 
 persons, would be by law required to be in 
 writing, and if made according to English 
 law to be under seal, may be made on behalf 
 of the Company in writing under the common 
 seal of the Company. 
 
 (2.) Any contract which, if made between private 
 persons, would be by law required to be in 
 writing and signed by the parties to be 
 charged therewith, may be made on behalf 
 of the Company in writing, signed by any 
 person acting under the express or implied 
 authority of the Company. 
 
 (3.) Any contract which, if made between private 
 
 persons, would by law be valid, although 
 
 made by parole only, and not reduced into 
 
 writing, may be made by parole on behalf of 
 
 the Company by any person acting under 
 
 the express or implied authority of the 
 Company. 
 
 In executing documents, or in accepting or 
 endorsing bills of exchange, Directors should be 
 careful they do so in proper form. For example, 
 w^here four Directors signed their names to a pro- 
 missory note, '' We, the Directors of the ' A ' Com- 
 pany, promise to pay," and at one corner the seal 
 of the Company was afhxed, with " witnessed by 
 L.L.," the Directors were held by the Court personally 
 liable, for there was nothing to exclude their personal 
 
 G 2 
 
84 
 
 THE director's HANDBOOK. 
 
 liability, and the aflfix.ing the seal was not sufficient 
 to show that the signature was on behalf of the 
 Company. 
 
 The Company's seal should be kept doubly locked, 
 one key being" retained by the Secretary, and the 
 other should be in th(^ hands of one of the Directors 
 by rotation, or each Director may have a key, if so 
 preferred by the Board. 
 
 The Articles of a Company made three Directors 
 a quorum. Two Directors only were present at a 
 meeting, when the seal of the Company was affixed 
 by the Secretary to a mortgage deed. The Court of 
 Appeal held that it was not the duty of the mort- 
 gagees to inquire whether the Secretary was duly 
 authorised to affix the seal, and that it must be 
 taken that the deed was duly executed [County of 
 Gloucester Bank v. Riidry Mcrthyr Colliery Co.), 
 
 Directors should not sign cheques placed before 
 them without ascertaining the accounts have been 
 examined and approved by the proper officer, and, 
 unless there is any necessity, cheques should only be 
 drawn at Board or committee meetings. A list of 
 all cheques drawn between Board meetings should be 
 reported at the following Board Meeting. 
 
 On the death or resignation of a Director, it is 
 usually in the power of the remaining Directors to 
 elect a successor, but they must, of course, act 
 according to the Articles of Association. 
 
 BOARD MEETINGS. 
 
 85 
 
 Before making a selection, a list of the most 
 eligible shareholders holding the necessary quali- 
 fication should be prepared, and their various capa- 
 bilities discussed. 
 
 It is a commendable practice on many Boards to 
 endeavour to select its members so that each may 
 have some special knowledge of the various depart- 
 ments of the business. For example, it is very 
 desirable for Railways, Waterworks, and Gas Com- 
 panies to have one or two Members of Parliament on 
 the Board, who would represent their interests when 
 Bills or motions came on for discussion affecting them. 
 
 For the same reason, in an Engineering Company, 
 an engineer of experience would be a useful member 
 of the Board ; in other cases a barrister, chartered 
 accountant, or solicitor would be desirable. 
 
 Beneficed or licensed clergymen are not allowed 
 to act as Directors or managing partners of a 
 Company, except of a fire or life assurance society 
 or a benefit society. 
 
 When the Directors consider it necessary to 
 strengthen the Board, they frequently arrange for 
 some one, not previously connected with the Company, 
 to acquire the necessary share qualification, and elect 
 him to the vacant seat ; but this should only be done 
 when there is not a duly qualified and capable share- 
 holder of sufficient social or commercial standing 
 desirous of accepting the vacancy. 
 
86 
 
 THE DIRECTOR'S HANDBOOK. 
 
 CHAPTER V. 
 
 MEETINGS OF SHAREHOLDERS. 
 
 TT is the duty of the Directors of a new Company 
 A to call a general meeting of the shareholders 
 within a j)eriod of not less than one month nor 
 more than three months from the date at which 
 the Company is entitled to commence business; this 
 meeting is called the statutory meeting. 
 
 At least seven days before the day on which the 
 statutory meeting is held the Directors are required 
 to forward to every shareholder a report, certified 
 by not less than two Directors, or, when there are 
 less than two Directors, by the sole Director and 
 Manager, containing the following statements : — 
 {a) The total number of shares allotted, dis- 
 tinguishing shares allotted as fully or partly 
 paid up otherwise than in cash, and stating 
 in the case of shares partly paid up the 
 extent to which they are so paid up, and, 
 in either case, the consideration for which 
 they have been allotted. 
 [b] The total amount of cash received by the 
 
 MEETINGS OF SHAREHOLDERS. 
 
 87 
 
 s 
 
 Company in respect of such shares, dis- 
 tinguished as aforesaid. 
 {c) An abstract of the receipts and payments of 
 the Company on capital account to the date 
 of the report, and an account or estimate 
 of the preliminary expenses of the Company. 
 [d] The names, addresses, and descriptions of the 
 Directors, Auditors (if any). Manager (if any), 
 and Secretary. 
 (6-) The particulars of any contract, the modifica- 
 tion of which is to be submitted to the 
 meeting for its approval, together with the 
 particulars of the modification or proposed 
 modification. 
 The report must, so far as it relates to the shares 
 allotted by the Company, and to the cash received 
 in respect of such shares, and to the receipts and 
 payments of the Company on capital account, be 
 certified as correct by the Auditors, if any have 
 been appointed. 
 
 As soon as the report has been issued to the 
 shareholders, the Directors are required to forthwith 
 file a copy, certified as explained above, with the 
 Registrar of Joint Stock Companies. 
 
 Previous to the statutory meeting the Directors 
 should cause to be prepared a list of the share- 
 holders, with their descriptions and addresses, showing 
 the number of shares held by them respectively, and 
 
88 
 
 THE DIRECTOR'S HANDBOOK. 
 
 they are required to produce this list at the com- 
 mencement of the meeting-, and the list is to remain 
 open and accessible to any shareholder during the 
 continuance of the meeting. 
 
 The shareholders present are at liberty to discuss 
 any matter relating to the formation of the Company, 
 or arising out of the report, whether previous notice 
 has been given or not, but no resolution of which 
 notice has not been given in accordance with the 
 Articles may be passed. 
 
 The meeting may adjourn from time to time, and 
 at any such adjourned meeting any resolution of 
 which notice has been given in accordance with the 
 Articles, either before or subsequently to the former 
 meeting, may be passed, and the adjourned meeting 
 has the same powers as the original meeting. 
 
 Should the Directors make default, either in filing 
 the report, or in holding the statutory meeting, then, 
 at the expiration of fourteen days after the last day 
 on which the meeting ought to have been held, any 
 shareholder may petition the Court for the winding 
 up of the Company. 
 
 On the hearing of the petition the Court may 
 either direct that the Company be wound up, or give 
 directions for the report to be filed, or the statutory 
 meeting to be held, or make such other Order as 
 it may consider just, and may order that the costs 
 of the petition be paid by the Directors or any 
 
 MEETINGS OF SHAREHOLDERS. 
 
 89 
 
 \ 
 
 I 
 
 Other persons who, in the opinion of the Court, are 
 responsible for the default. 
 
 Every Company is required to hold either annual 
 or half-yearly general meetings, whichever is pre- 
 scribed by the Articles of Association. If no mention 
 of general meetings is made in the Articles, or if there 
 be no Articles, then a general meeting of shareholders 
 has to take place once at least in every year. 
 
 At these yearly or half-yearly meetings the 
 accounts, showing the results of the operations of the 
 Company, are presented, the election of Directors and 
 Auditors takes place, and the declaration of a dividend 
 sanctioned ; but no business can be transacted at these 
 ordinary meetings other than that arising out of these 
 matters, or matters which are prescribed by the Articles 
 as being "ordinary" business. When any ** special" 
 business — as, for example, altering the Articles of 
 Association — is to be transacted, an extraordinary 
 general meeting has to be summoned, and the business 
 of this meeting is confined to that mentioned in the 
 circular convening the meeting. 
 
 The notice calling an extraordinary general meeting, 
 at which resolutions will be put requiring to be 
 confirmed at a second meeting, frequently contains a 
 clause that, " Should such resolutions be duly passed, 
 the same will be submitted for confirmation as special 
 resolutions to a subsequent extraordinary general 
 meeting, which will be held on at the same 
 
90 
 
 THE director's HANDBOOK. 
 
 time and place." The Court of Appeal have decided 
 that should the resolutions be passed at the first 
 meeting it is necessary to send out a notice to the 
 shareholders informing them of the fact, and that the 
 second meeting will be held, otherwise they might be 
 in doubt as to whether the second meeting was going 
 to take place. 
 
 Previous to a general meeting of shareholders, the 
 Directors should, at a Board meeting, discuss and 
 settle the notice convening it, and, subsequently, the 
 programme of the meeting. 
 
 The notice convening the ordinary annual general 
 meeting should contain the place and time of meeting, 
 with the statement that it is held for the purpose 
 of receiving the accounts and report of the Directors 
 for the financial year last ended, for the election of 
 Directors and Auditors, and for ordinary business. 
 It is also customary to state the period during which 
 the transfer books will be closed ; this is usually the 
 fourteen days immediately preceding the meeting, 
 the time prescribed by Table **A." 
 
 The notice convening an extraordinary general 
 meeting should give full information as to that which 
 is proposed shall be done, otherwise the resolutions 
 passed may be invalid, and, if so, a confirmation at 
 the annual general meeting will not render them 
 valid. 
 
 The notice must also disclose all facts necessary to 
 
 MEETINGS OF SHAREHOLDERS. 
 
 91 
 
 J 
 
 enable each shareholder receiving it to determine in 
 his own interest whether or not he ought to attend 
 the meeting; and pecuniary interest of a Director in 
 the matter of a special resolution to be proposed at 
 the meeting is a material fact for this purpose 
 {Ttessen v. Henderson). 
 
 The Articles of Association usually mention the 
 month in which the annual general meeting is to 
 be held ; but should they not contain a clause to this 
 effect the Directors are at liberty to hold the meeting 
 on any day not later than the 31st December in the 
 year following that in which the statutory meeting 
 or the previous general meeting was held. 
 
 It is not, however, desirable to unduly postpone 
 the holding of the annual meeting, as it provokes 
 hostile criticism, which is always more or less hurtful 
 to a Company, and it should, therefore, be held two 
 or three months after the financial year has closed. 
 This will allow sufficient time for the books of 
 account to be balanced, and for the Revenue Account, 
 Balance Sheet, and any other statements the Directors 
 desire to submit to the shareholders to be prepared 
 and audited. 
 
 When the business is transacted in the Colonies 
 or abroad, and the returns cannot be transmitted to 
 the head office for several weeks after the date to 
 which the accounts are made up, a longer time has 
 necessarily to elapse before the annual meeting can 
 
92 
 
 THE director's HANDBOOK. 
 
 be held. Many Companies carrying on business 
 both in Great Britain and the Colonies present 
 accounts givani^- the results of the Colonial business 
 to a date three months earlier than that of the date 
 on which the head office books are closed. 
 
 Articles of Association frequently contain a clause 
 that the accounts are to be submitted to the Auditors 
 fourteen days before the meeting, and that after they 
 are checked with the books and vouchers they are 
 to be returned by the Auditors, with their report 
 thereon. This is, however, seldom if ever carried 
 into practice ; the usual plan is for the Auditors to 
 be consulted as to the manner in which the accounts 
 shall be submitted to the shareholders, and for them 
 to commence their checking without waiting for the 
 closing of the books, while in small Companies, when 
 the book-keeper is not sufficiently experienced to 
 close the books, the Auditors (supposing them to be 
 Chartered Accountants) are frequently instructed by 
 the Directors to do so, and to prepare therefrom the 
 statements to be submitted to the shareholders. 
 
 The Accounts, when prepared, should be placed 
 before a Board meeting for consideration, special notice 
 being given by the Secretary when sending out the 
 usual summons that part of the business is to settle 
 and pass the Accounts previous to audit. It is very 
 important all the Directors should be present, as 
 the Accounts are those of the Directors, even 
 
 MEETINGS OF SHAREHOLDERS. 
 
 93 
 
 when, at their request, they are prepared by the 
 Auditors. 
 
 Great care should be exercised by the Directors 
 to prevent a Revenue Account being issued to the 
 shareholders showing a profit which has not been 
 legitimately earned. For this purpose, schedules of 
 the debtors, bills receivable, stock-in-trade, invest- 
 ments, and other assets should be carefully scrutinised, 
 so that the Directors can ascertain whether a suffi- 
 cient amount has been charged against the Revenue 
 Account for loss likely to arise on realisation of 
 the debts and for depreciation of stocks. When 
 the Company holds leasehold property an amount 
 should be charged annually against the Revenue 
 Account, so that the balance of the ledger account 
 of this asset will represent an amount not exceeding 
 its value; for the same reason the Revenue Account 
 should also be charged with depreciation for plant, 
 machinery, and property of every description of a 
 perishable nature. 
 
 If, during the period embraced by the Accounts, 
 the Company has incurred an extraordinary expendi- 
 ture, which the Directors consider will add to the 
 profits of the Company in succeeding years, and that 
 it would therefore be unfair to charge it against the 
 Revenue Account under consideration, they should, 
 before deciding to include part of this expenditure on 
 the credit side of the balance sheet, and, therefore, 
 
^4 
 
 THE DIRECTOR'S HANDBOOK. 
 
 not include it among the expenditure in the Revenue 
 Account, consult their solicitor as to whether they 
 can do so without incurring the risk of personal 
 liability, should the Company go into liquidation. 
 
 If a Director, or any other officer of a Company 
 not having Articles of Association, be indebted to the 
 Company at the date on which the books are closed, 
 the sum due by them must be separately stated on 
 the credit side of the Balance vSheet, as required by 
 the form of Balance Sheet affixed to Table " A." 
 
 Directors are required, not only during the audit, 
 but at all times, to give to the Auditors access to 
 the books, accounts, and vouchers, and such informa- 
 tion and explanation as may be necessary for the 
 performance of the duties of the Auditors. 
 
 The Articles of a Company provided for the 
 submission of accounts up to a date within three 
 months, and reports thereon, the sanction of a dividend, 
 and the transaction of the ordinary business at the 
 annual general meeting. It was held that a final 
 dividend could not be sanctioned except at an 
 annual general meeting at which accounts up to the 
 prescribed date and reports thereon were submitted 
 [Nicholson v. Rhodesia Trading Co.). 
 
 Before meeting the shareholders, either at an 
 ordinary or an extraordinary general meeting, the 
 Directors should decide on the resolutions, also their 
 proposers and seconders ; otherwise time is wasted, 
 
 MEETINGS OF SHAREHOLDERS. 
 
 95 
 
 and the absence of these arrangements frequently 
 causes confusion, resulting in great disorder. Should 
 opposition be expected from the shareholders, it is 
 advisable for the I^irectors to issue proxies, with 
 the names of two or three of their number inserted 
 as proxy holders. When this is done care must be 
 taken that the proxies are legal, and that they are 
 received at the offices of the Company within the 
 time prescribed, the Secretary being instructed to 
 endorse on each proxy the hour and day on which 
 it arrives. 
 
 Proxies hav^e to bear a peimy stamp, either adhesive 
 or impressed, and the payments for stamping the 
 proxies must be borne by the Directors personally, 
 and must not come out of the Company's funds 
 [Studdert v. Grosvtnor). 
 
 If the Articles of Association require that meetings 
 of the shareholders should be advertised in newspapers, 
 the Directors should be careful to comply with this 
 regulation. 
 
 Before commencing the business of the meeting, 
 the Directors should ascertain that the prescribed 
 quorum is present. Should no quorum be prescribed, 
 which is very unusual, then the business can be 
 transacted by a vote of the majority of those present. 
 
 " Whenever a certain number are incorporated, 
 a major part may do any corporate act ; so, if all are 
 summoned and part appear, a major part of those 
 
96 
 
 THE DIRFXTOR S HANDBOOK. 
 
 that appear may do a corporate act " {^Attorney-General 
 V. Davy). 
 
 When the Articles prescribe a quorum, business 
 cannot be transacted by a less number. The assent 
 of every member of a Company g-iven separately has 
 not the same effect as a resolution passed at a 
 General Afeeting [Re George Neivmafi & Co.). 
 
 It is usual for the Chairman of the Board of 
 Directors to preside at all meetings, and the Articles 
 of Association usually contain a clause stating that 
 the Chairman, if present, shall preside. If he be not 
 present, then the chair is usually taken by one of the 
 Directors. 
 
 As a rule, there is no difficulty about the election 
 of a Chairman, but, occasionally, at meetings where 
 it is known that matters will be brought forward 
 involving acrimonious discussion, shareholders often 
 attach undue importance as to who shall preside. 
 
 At all meetings where it is not prescribed by the 
 Articles as to who shall preside, the proceedings 
 commence by a proposition, made by one of the 
 members, " That Mr. A. do take the chair." This 
 motion must be seconded, and, if it is not agreed to, 
 and it appears there will be confusion over the election 
 of a Chairman, the most desirable plan is for one 
 of the Directors to propose "That Mr. B. do act 
 as president during the election of a Chairman." 
 
 The Director or shareholder thus appointed acts 
 
 MEETINGS OF SHAREHOLDERS. 
 
 97 
 
 
 as Chairman until a final selection is made as to 
 who shall preside during the meeting, and his duty 
 is simply to confine the discussion to the election, 
 and only to hear motions naming a Chairman. 
 
 If several names are proposed, the temporary 
 Chairman should obtain the opinion of the meeting 
 upon each candidate successively in the order in which 
 their names are proposed, as follows : *' The question 
 is that Mr. C. do take the chair," and then put it to 
 the vote, repeating the same for Mr. D. or Mr. E. 
 The majority of the votes decides the final selection. 
 The temporary Chairman then vacates the chair, unless 
 he has been selected as Chairman for the meeting. 
 
 The principal duty of the Chairman is to maintain 
 order, conduct proceedings regularly, and take care 
 that the sense of the meeting is properly ascertained 
 with regard to any question before it [National Divellings 
 Society v. Sykes. 
 
 To this purpose the Chairman should confine dis- 
 cussion to the resolution or amendment before the 
 meeting. Mere conversation is, of course, a breach 
 of order, and should at once be suppressed. If more 
 than one member attempt to speak at the same 
 time, the Chairman should call on the one who, in his 
 opinion, was the first to rise from his seat; the 
 meeting, however, have it in their power to decide 
 by a resolution who shall be heard. 
 
 A Chairman should be strictly impartial, and is 
 
 H 
 
98 
 
 THE DIRECTOR'S HANDBOOK. 
 
 bound to put to the meeting any resolution or 
 amendment which has been proposed and seconded, 
 even though it be entirely at variance with his own 
 wishes. It is very desirable a Chairman should not 
 bring forward any motions himself which are not likely 
 to be carried without discussion. 
 
 Where notice is required and has not been given, 
 or if insufficient notice has been given, the Chairman 
 should decline to put the notice to the meeting. An 
 amendment, however, of which notice has not been 
 given may be proposed to a motion properly moved 
 so long as it is within the scope of the notice 
 originally given {Henderson v. Bank of Australasia). 
 A Chairman has no power to dissolve a meeting 
 before it has finished the business for which it is 
 convened, and if he does so the meeting is com- 
 petent to resolve to appoint another Chairman and 
 go on with the business [National Dwellings Society 
 V. Sykes) . 
 
 On assuming the chair, the Chairman's first duty 
 is to call upon the Secretary to read the notice 
 calling the meeting, and the business is then 
 proceeded with. 
 
 At the annual general meetings of the share- 
 holders, the first business usually transacted, after the 
 Secretary has read the notice convening the meeting, 
 is the reading of the report of the Directors and the 
 accounts showing the result of the transactions, but, 
 
 MEETINGS OF SHAREHOLDERS. 
 
 99 
 
 as these are invariably printed and circulated amongst 
 the shareholders previous to the meeting, it is open 
 to the meeting to resolve they be taken as read. 
 
 The resolution, " That the accounts and report be 
 adopted," follows, and this is usually proposed by the 
 Chairman in his capacity as Chairman of the Board 
 or leading Director present, and he takes this 
 opportunity of giving a summary of the transactions 
 of the Company during the period embraced by the 
 accounts, together with his views thereon and estimates 
 for the future. This resolution is usually seconded by 
 another Director, who is, of course, entitled to make 
 a speech ; but if he be satisfied with the Chairman's 
 remarks, and feels there is no object in supplementing 
 them, he need merely second the resolution. 
 
 Any other Director or member may then speak 
 in support of the resolution, or may move an 
 amendment. The amendment must not be a direct 
 negative to the resolution, such as " That the accounts 
 and report be not adopted," for there is no necessity 
 for this, the vote taken on the resolution having the 
 same effect as that on an amendment of this nature. 
 
 Amendments can be made by leaving out words, 
 by adding words, or by substituting words for 
 others in the resolution ; all amendments must be 
 seconded. Amendments can also be made to 
 amendments. 
 
 Amendments have priority over the original 
 
 H 2 
 
100 
 
 THE director's HANDBOOK. 
 
 motion, and are put to the meeting in the order in 
 which they are brought forward. When disposed of, 
 the resolution, as altered by the amendments carried, 
 is then put from the chair. 
 
 No member may speak twice on a resolution or 
 amendment, except to explain any portion of his 
 speech which may have been misunderstood, but in 
 his explanation he is not allowed to introduce new 
 matter, and should he do so the Chairman should at 
 once interfere. A reply is allowed to the mover of 
 a substantive motion, but not to the mover of an 
 amendment. 
 
 Should the Chairman improperly refuse to submit 
 an amendment to the meeting, the resolution actually 
 carried will be invalidated {Henderson v. Bank of 
 Anstralasiii). 
 
 Should the shareholders not approve of the report 
 and accounts, and the resolution for their adoption 
 be rejected, or an amendment passed to a similar 
 effect, a committee of investigation is usually at once 
 appointed by the shareholders. 
 
 The appointment of a committee of investigation 
 frequently does great injury to the credit of a Company, 
 and this should be explained to the meeting by the 
 Chairman or one of the Directors before the resolution 
 is put. Directors should therefore resist the appoint- 
 ment of a committee of investigation, if the proposal 
 proceeds from mere personal feeling or is based on 
 
 MEETINGS OF SHAREHOLDERS. 
 
 lOI 
 
 improper grounds; but they should at once acquiesce 
 if they feel the shareholders as a body believe they 
 have a genuine grievance, and facilitate the inquiry 
 in every way. 
 
 While the committee are engaged in their 
 investigation, the Directors, or so many of them as 
 remain in office, will of course continue to carry on 
 the business in the ordinary way ; and when the 
 committee have issued their report it is the practice 
 for the Directors to consider it, and to reply to it by 
 issuing a circular to the shareholders, and summoning 
 a general meeting, at which it will be determined 
 what steps are to be taken, having regard to the 
 facts contained in the committee's report, and the 
 reply of the Directors. 
 
 Should, however, the report and accounts presented 
 by the Directors at the annual general meeting be 
 adopted, the shareholders are then asked to sanction 
 the declaration of a dividend, unless the profits do 
 not admit of one being declared, and their next duty 
 is usually the election of Directors in the place of those 
 who retire, it being the customary practice for some 
 of the Directors to retire annually by rotation, but, as 
 a rule, they are eligible for re-election. If there are more 
 eligible candidates than there are vacancies, the names 
 are usually submitted to the meeting singly, the 
 Chairman deciding by counting the hands held up 
 for each candidate, and those for whom the greater 
 
I02 
 
 THE director's HANDBOOK. 
 
 number of hands are held up are elected. Unless a 
 poll is demanded, th(; decision of the Chairman as to 
 the result of a show of hands is final. 
 
 The Auditors are then elected, and their rt^munera- 
 tion fixed. It is now the customary practice for the 
 shareholders to re-elect those who have just vacated 
 the office. Unless there is any reason for supposing 
 they have not done their duty properly, the re-election 
 of the Auditors is to be commended, on account of 
 their familiarity with the books of account. 
 
 Should the Auditors, however, not be Chartered 
 iVccountants, but have been originally elected merely 
 on account of their having been shareholders, the 
 Directors should, in their own interests, as well as in 
 the interests of the shareholders, take the earliest 
 opportunity of replacing the amateur by a i)rofessional 
 Auditor. Occasionally, the Articles of Association 
 require the Auditor to be a shareholder; the clause 
 to this effect should be altered at the first 
 opportunity. 
 
 The Articles of Association usually contain clauses 
 giving shareholders the power of calling an extra- 
 ordinary general meeting, and stating the circumstances 
 when they may and when they may not do so. 
 
 "The Companies Act, 1900," enacts that, notwith- 
 standing anything there may be in any regulations 
 of a Company, the Directors must, on the requisition 
 of the holders of not less than one-tenth of the 
 
 MEETINGS OF SHAREHOLDERS. 
 
 103 
 
 ^ 
 
 issued capital, upon which all calls or other sums 
 then due have been paid, forthwith proceed to con- 
 vene an extraordinary general meeting. 
 
 The requisition, however, must state the objects 
 of the meeting, and must be signed by the requisi- 
 tionists, and deposited at the office of the Company, 
 and may consist of several documents in like form, 
 each signed by one or more requisitionists. 
 
 Should the Directors not proceed to convene a 
 meeting, to be held within twenty-one days from the 
 date of the requisition being deposited, the requisi- 
 tionists, or a majority of them in value, may themselves 
 convene the meeting. Any meeting, however, so con- 
 vened must not be held after three months from the 
 date of the deposit. 
 
 If at the meeting, when held, a resolution requiring 
 confirmation at another meeting is passed, the Directors 
 are required to forthwith convene a further extra- 
 ordinary general meeting for the purpose of considering 
 the resolution, and, if thought fit, of confirming it as 
 a special resolution. 
 
 Should the Directors not convene the meeting 
 within seven days from the date of the passing of 
 
 the first resolution, the requisitionists, or a majority 
 
 of them in value, may themselves convene the meeting. 
 The requisitionists are required to convene these 
 
 meetings in the same manner, as nearly as possible, 
 
 as meetings convened by the Directors. 
 
I04 
 
 THE director's HANDBOOK. 
 
 A resolution, passed by a Company registered under 
 the Act of 1862, is considered a special resolution 
 whenever it has been passed by a majority of not 
 less than three-fourths of such members of the Company 
 for the time being entitled, according to the regulations 
 of the Company, to vote as may be present in person 
 or by proxy (where proxies are allowed), at any 
 general meeting of which notice specifying the 
 intention to propose such resolution has been duly 
 given, and such resolution has been confirmed by the 
 majority of such members at a subsequent general 
 meeting, of which notice has been duly given, and 
 held at an interval of not less than fourteen days, 
 nor more than a month from the date of the meeting 
 at which the resolution was first passed. 
 
 The notice of meeting required by the Articles 
 must be given, and the number of days' notice required 
 means that these days must be clear days. 
 
 A fresh notice must be given of a confirmatory 
 meeting, and must contain the actual words of the 
 resolution to be submitted for confirmation. The 
 resolution must be confirmed without amendment and 
 in the same form as adopted at the first meeting 
 [Wall V. London and Northern Assets Corporation). 
 
 Where a Director of a Company took shares in 
 new capital raised under a resolution passed and con- 
 firmed at meetings, the interval between which was 
 thirteen days only (the meetings having been held 
 
 MEETINGS OF SHAREHOLDERS. 
 
 'O5 
 
 \ 
 
 i 
 
 on the 3rd and 17th January), and the Company 
 afterwards went into liquidation, he was held to be 
 precluded from objecting to the validity of the resolu- 
 tion as a ground for his removal from the list of 
 contributories. 
 
 In this case an extraordinary general meeting of 
 the shareholders was held on the 3rd of January, 
 at which a special resolution w^as passed that the 
 capital of the Compemy should be increased from 
 ;^ 1 0,000 to ;^30,ooo by the issue of 200 new shares 
 of i^ioo each, and this resolution was purported to 
 be confirmed at a subsequent general meeting on the 
 17th January. 
 
 The Director at the first meeting offered to take 
 ten of the new shares, and on the i6th January 
 he forwarded to the Secretary the sum of ;£io5 on 
 account of such shares, and the shares were entered 
 in his name on the register of members. 
 
 After the Company had gone into liquidation, six 
 years afterwards, the Director stated he was not aware 
 he was on the register in respect of those ten shares. 
 The Secretary admitted that he had not sent out 
 letters of allotment to those shareholders who ex- 
 pressed their intention of taking new shares at the 
 meeting on the 3rd January, but it appeared the 
 Director had been present at successive meetings of 
 the Board at which statements of assets and liabili- 
 ties were adopted containing entries of new shares 
 
io6 
 
 THE director's HANDBOOK. 
 
 issued, including the ten shares standing in his 
 name, and he was held by the Court to be liable. 
 
 The Articles of Association usually contain a 
 clause providing how many votes each shareholder 
 is entitled to. 
 
 In the first instance voting is taken by a show 
 of hands, each shareholder having a single vote for 
 himself, but none for any persons whose proxies he 
 may hold [Ernest v. Loma Gold Mines), 
 
 When some of the shareholders are dissatisfied 
 with the result of a show of hands, they can, if they 
 obtain the support of the number required by the 
 Articles, demand a poll, in which case proxies may 
 be used. The demand for a poll, and the method of 
 taking it, must be in accordance with the provisions 
 of the Articles. 
 
 A notice convening an extraordinary general 
 meeting to confirm a special resolution was accom- 
 panied by a circular from the Secretary and Directors, 
 with a proxy attached, asking for the return of the 
 proxy in support of the resolution. By a printer's 
 error the date of the meeting was left blank in the 
 proxy. Several of the members executed and 
 returned their proxies (which were duly stamped) 
 without filling up the blanks, which were filled up 
 by the secretary, before the proxies were lodged with 
 the Company. The Court of Appeal held that 
 these proxies were valid within the provisions of 
 
 MEETINGS OF SHAREHOLDERS. 
 
 !07 
 
 "The Stamp Act, 1891," Sec. 80 [Ernest v. Loma 
 Gold Mines ^ Ltd.). 
 
 Proxy papers to be used at meetings to consider 
 schemes of arrangement under " The Joint Stock Com- 
 panies (Arrangement) Act, 1870," must follow the 
 office form settled by the Court in 1896. 
 
 Should a poll be demanded by a shareholder on 
 any resolution or amendment, and he is supported by 
 the number of shareholders prescribed by the Articles 
 as being the minimum number who may demand a 
 poll, the declaration by the Chairman that the resolu- 
 tion has been carried is void, and the decision is 
 then arrived at by means of the poll. 
 
 When the Articles of Association give shareholders 
 qualified to vote, and holding a certain number of 
 shares, the right of demanding a poll, the power is 
 exercisable only by shareholders present in person ; 
 as the holder of a proxy is not the holder of the 
 shares included in the proxy, and, therefore, a proxy 
 authorising a person to vote does not authorise him 
 to demand a poll. 
 
 The Chairman has a right to decide whether the 
 poll shall be taken at once, or whether the meeting 
 shall be adjourned in order to give members who are 
 not present an opportunity to vote ; but, whatever the 
 strict rights of a Chairman might be, it would scarcely 
 be seemly for him to insist on a poll being taken 
 at once, when it was evidently the wish of the 
 
io8 
 
 THE director's HANDBOOK. 
 
 majority of the shareholders that there should be 
 an adjournment. 
 
 Ify however, the Directors, and a large body of 
 shareholders acting against the Directors, have both 
 issued circulars asking for proxies, then it would be 
 perfectly legitimate for the Chairman to decide that 
 the poll should be taken at once, without any 
 adjournment. 
 
 It has been decided by the Court, where the Articles 
 of Association provided that if at any general meeting 
 of the Company a poll should be demanded it should 
 be taken in such manner as the Chairman shall direct, 
 that the Chairman h£id a legal right to direct the poll 
 to be taken then and there, notwithstanding a protest 
 by one of the shareholders. 
 
 Before the poll is taken scrutineers should be 
 appointed, and the most suitable persons for this 
 purpose are the Auditors, as, being already officers 
 of the Company and acquainted with its affairs, 
 they are preferable to strangers, and they are the 
 only persons officially connected with the Company 
 who could be perfectly impartial. 
 
 Should a Director be debarred by the Articles of 
 Association from voting as a Director in respect of 
 any contract in which he is interested, this does not 
 disentitle him to vote as a shareholder at a general 
 meeting. 
 
 When a meeting of shareholders is adjourned, it 
 
 MEETINGS OF SHAREHOLDERS. 
 
 109 
 
 is not necessary to give any notice of the adjourn- 
 ment, as it is merely a continuation of the previous 
 meeting, at which, should the notice of the original 
 meeting have been properly given, all the share- 
 holders had the opportunity of being present, while 
 those who were present agreed to the time and 
 place of adjournment. 
 
 Should the Directors, however, feel that those 
 shareholders who were present at the first meeting 
 are likely to act at the adjourned meeting against 
 the interests of the general body of shareholders, 
 they may, of course, send out a notice of the ad- 
 journed meeting to all the shareholders, with any 
 other document, explaining what has taken place, 
 and their own views thereon. 
 
 Within fifteen days after its confirmation a 
 printed copy of every special resolution, with par- 
 ticulars of the times and place, or places of passing 
 and confirming the same, and authenticated by the 
 signature of the Chairman, a Director, or the Secre- 
 tary of the Company, must be filed with the 
 Registrar of Joint Stock Companies. 
 
 A copy of every special resolution must be an- 
 nexed to, or embodied in, every copy of the Articles 
 issued after the confirmation of the resolution, and 
 every Director is liable to a penalty of one pound 
 for each copy of which default has been made. 
 
 Every Company registered under the Act of 1862, 
 
/ 
 
 / 
 
 no 
 
 THE DIRFXTOR'S HANDBOOK. 
 
 having a capital divided into shares, has to make 
 out a list of its members on the fourteenth day 
 succeeding the day on which the annual general 
 meeting has been held. This list contains the names, 
 addresses, and occupations of all the members, and 
 the number of shares held by each of them, and is 
 to be entered in a separate part of the Register 
 of Members, which will also contain a summary 
 showing the following particulars : — 
 
 1. The amount of the capital of the Company 
 
 and the number of shares into which it 
 is divided. 
 
 2. The number of shares taken from the 
 
 commencement of the Company up to the 
 date of the summary, distinguishing between 
 the shares issued for cash and the shares 
 issued otherwise than for cash, or only 
 partly for cash. 
 
 3. The amount of calls made on each share. 
 
 4. The total amount of calls received. 
 
 5. The total amount of calls unpaid. 
 
 6. The total amount of calls forfeited. 
 
 7. The total amount of debt due from the 
 
 Company in respect of all mortgages and 
 charges which require registration under 
 *' The Companies Act, 1900," or which 
 would require registration if created after the 
 commencement of that Act. 
 
 MEETINGS OF SHAREHOLDERS. 
 
 1 1 1 
 
 ' 
 
 8. The names, addresses, and occupations of 
 
 the persons who have ceased to be 
 members since the last list was made, 
 and the number of shares held by each 
 of them. 
 
 9. The names and addresses of the persons 
 
 who are the Directors of the Company at 
 the date of the summary. 
 
 A copy of this list and summary, signed by the 
 Manager or the Secretary, and bearing a five-shilling 
 Inland Revenue stamp, has to be filed within seven 
 days from this fourteenth day in the ofiice of the 
 Registrar of Joint Stock Companies at Somerset 
 House, and a Director, knowingly permitting this 
 not being done, is liable to a penalty of five pounds 
 for every day during which the default continues. 
 
 It is also the duty of the Directors to keep 
 proper minutes of all resolutions and proceedings 
 of general meetings of the shareholders, and these 
 minutes, if purporting to be signed by the Chairman 
 of the meeting at which these resolutions were passed 
 or proceedings had, or by the Chairman of the next 
 succeeding meeting, are received as evidence in all 
 legal proceedings. 
 
 The minutes of meetings of the shareholders are 
 usually kept in a distinct book from the minutes of 
 the Board meetings, although there are not any 
 regulations to this effect. When kept distinct, however, 
 
 m 
 
I 12 
 
 THE DIRFXTOR S HANDBOOK. 
 
 there cannot be any objection to their being shown 
 to any shareholder who may desire inspection. 
 
 The Directors' Minute Book is, however, a record 
 of the private affairs of the Company, and no one 
 has any power to compel its production. 
 
 GENERAL DUTIES AND POWERS OF DIRECTORS. 1 13 
 
 CHAPTER VI. 
 
 GENERAL DUTIES AND POWERS OF DIRECTORS. 
 
 nr^HE Directors of a Public Company are practically 
 A its agents or managing partners, and their 
 general authority extends to all acts reasonably 
 necessary for management. They must be careful 
 at all times to act strictly within their powers, as 
 defined by the Acts of Parliament and the Articles 
 of Association, and for their own protection they 
 should ask their solicitor to be present at all Board 
 meetings at which they expect any difficult matters 
 are likely to be brought forward. 
 
 The Directors, as already explained, have a general 
 power of allotment of shares and of approving transfers 
 of shares, of employing the Company's funds, of 
 making calls, receiving payment of calls in advance, 
 and forfeiting shares; but they can be held liable, 
 as trustees, for the misuse of these powers. 
 
 At the same time, however, they are in one 
 respect in a very different position to that of trustees ; 
 for although they may be rendered liable for misuse 
 of their powers, and may also be held personally 
 liable for moneys belonging to a Company they 
 
114 
 
 THK director's HANDBOOK. 
 
 have improperly applied to their own use, or also 
 for moneys misapplied, from which they have not 
 deri\ed any }M'rsonal benefit, yet they cannot be 
 charged, as a trustee can be, for want of due dilig-ence 
 in neglecting to sue, when by suing earlier an amount 
 migln have been recovered. In giving his decision 
 to this effect, the late Master of the Rolls, Sir G. 
 Jessel, made the following remarks : — 
 
 ''One must be very careful in administering the 
 law of Joint-Stock Companies not to press so hardly 
 on honest Directors as to make them liable for these 
 constructive defaults, the only eflFect of which would 
 be to deter all men of any property, and perhaps all 
 men who have any character to lose, from becoming 
 Directors of Companies at all. On the one hand, 
 I think the Court should do its utmost to bring 
 fraudulent Directors to account, and, on the other 
 hand, should also do its best to allow honest men 
 to act reasonably as Directors. 
 
 *' Wilful default, no doubt, includes the case of a 
 trustee neglecting to sue, though he might by suing 
 earlier have recovered a trust fund; in that case he 
 is made liable for want of due diligence in his trust. 
 But, I think. Directors are not liable on the same 
 principle. Directors have sometimes been called 
 trustees, or commercial trustees, and sometimes they 
 have been called managing partners ; it does not 
 much matter what you call them, so long as you 
 
 GENERAL DUTIES AND POWF.RS OF DIRECTORS. I 15 
 
 understand what their true position is, which is that 
 they are really commercial men managing a trading 
 concern for the benefit of themselves and of all the 
 other shareholders in it. They are bound, no doubt, 
 to use reasonable diligence, having regard to their 
 position, though probably an ordinary Director, who 
 only attends at the Board occasionally, cannot be 
 expected to devote as much time and attention to 
 the business as the sole managing partner of an 
 ordinary partnership ; but they are bound to use fair 
 and reasonable diligence in the management of the 
 Company's affairs, and to act honestly. 
 
 " But when, without fraud and without dishonesty, 
 they have omitted to get in a debt due to the 
 Company, by not suing within time, or because the 
 man was solvent at one moment and became insolvent 
 at another, T am of opinion that it by no means 
 follows as a matter of course, as it might in the case 
 of ordinary trustees of trust funds or of a trust debt, 
 that they are to be made liable. Traders have a 
 discretion as to whether they shall sue their customers, 
 a discretion which is not vested in the trustees of a 
 debt under a settlement." 
 
 The late Master of the Rolls then expressed his 
 opinion that the Directors, as ordinary managing 
 partners of a trading concern, were allowed a discretion, 
 and then added : — 
 
 "Again, Directors are called trustees; they are no 
 
 I 2 
 
ii6 
 
 THE DIRECTOR'S HANDBOOK. 
 
 doubt trustees of assets which have come into their 
 hands, or whicli are under their control, but they are 
 not trustees of a debt due to the Company " [Forest 
 of Dean Coal Co.). 
 
 The late Lord Justice James made the following 
 nmiarks when delivering a judgment : — 
 
 ** The distinction between a Director and a Trustee 
 is an essential distinction, founded on the very nature 
 of things. A trustee is a man who is the owner of 
 the property, and deals with it as principal, as owner, 
 and as master, subject only to an equitable oi)ligation 
 to account to some persons to whom he stands in 
 the relation of trustee, and who are his ccstuis que trust. 
 The same individual may fill the office of Director 
 and also be a trustee having property, but that is 
 a rare, exceptional, and casual circumstance. The 
 office of Director is that of a paid servant of the 
 Company. A Director never enters into a contract 
 for himself, but he enters into contracts for his 
 principal, that is, for the Company of whom he is a 
 Director and for whom he is acting. He cannot sue 
 on such contracts, nor be sued on them, unless he 
 exceeds his authority. That seems to me to be the 
 broad distinction between trustees and Directors" 
 {Smith V. Anderson). 
 
 Directors are bound to use the same amount ot 
 prudence in acting for their Company as they would 
 in the same circumstances when acting for themselves, 
 
 GENERAL DUTIES AND POWERS OF DIRECTORS. I I 7 
 
 and they will not be held personally liable should the 
 Company sustain a loss through acts done imprudently, 
 but within the scope of their powers. So long as 
 ])irectors intend to do what is right, and only 
 commit mere errors of judgment, the Court will not 
 hold them personally responsible. 
 
 Although knowledge of and sanction of misconduct 
 are enough to create liability, even in the absence of 
 actual participation in the misconduct, yet each Director 
 is only liable for money improperly received by himself, 
 or by himself jointly with others [Parker v. McKenna). 
 
 A Director is not liable for the misapplication by 
 others of a cheque which he joined in drawing for a 
 lawful purpose [Montr otter Asphalfe Co.). 
 
 The Court will, however, hold Directors personally 
 liable if, through not complying with the regulations 
 of the Company, the shareholders suffer loss. In a 
 case where an Insurance Company represented in 
 its business prospectuses that half of the premiums 
 received would be invested in Consols for the benefit 
 of the policy-holders, and the Directors omitted to 
 do so, a Director was, on the Company going into 
 liquidation, held liable for half the premiums received 
 during the period he acted as a Director, although 
 he resided in the country and had seldom attended 
 the Board meetings. It was clearly his duty to see 
 that the investments were made in accordance with 
 the contract with the policy-holders, and his not 
 
n8 
 
 THE DIRECTORS HANDBOOK. 
 
 r 
 
 doing so was a breach of trust to the Company, 
 for which he could be made liable. 
 
 For his own protection, every Director should 
 periodically inspect the securities of the Company. 
 Many Boards, especially those of Banks, instruct the 
 Auditors to present themselves, without notice, and to 
 demand the instant production of all the securities, 
 either once or twice during the year, in addition to 
 the inspection at the audit, and the practice is much 
 to be commended. Unless there are trustees specially 
 appointed, in whose name the investments are made, 
 they should stand in the names of two at least of the 
 Directors, and never under any circumstances in the 
 names of the Manager, Secretary, or other official, 
 without being jointly held in the name also of one 
 of the Directors. 
 
 Being agents, the Directors are not allowed to 
 make any profit without the knowledge and consent 
 of their principals, that is, the shareholders; for 
 example, where shares were issued at a premium, 
 and the Directors made a profit by taking new shares 
 off the hands of persons to whom a large number 
 were allotted, and then selling them, they were held 
 liable to refund this proht {Parker v. McKenna). 
 
 Where, however, the Articles provide that Directors 
 may participate in the profits of contracts made with 
 the Company upon declaring their interest in such 
 profits, they m^iy do so provided a Director must 
 
 GENERAL DUTIES AND POWERS OE DIRECTORS. I 1 9 
 
 disclose in each case, not only that he has an interest, 
 but also the nature and amount of his interest 
 ( Turnhnll v. West Ridmg Club). 
 
 A Director cannot justify himself for sanctioning 
 an improper payment of the funds of a Company 
 by asserting ignorance of the purpose to which the 
 funds were to be applied ; and if a Director merely 
 protests ^igainst a proposed transaction being carried 
 out which he knows to be improper, but does nothing 
 more, he stands in no better position than his 
 co-Directors who carry out this transaction. 
 
 The Statute of Limitations is a bar to proceedings 
 against a Director for misfeasance, consequently, 
 unless the claim is founded upon any fraud or 
 fraudulent breach of trust, or is to recover trust 
 property, or the proceeds of the breach still retained 
 by the Director, or previously received by him and 
 converted to his own use, an action cannot be main- 
 tained against him after the lapse of six years [Lands 
 Allotment Co.; see also " The Trustee Act, 1888," Sec. 8;. 
 
 In a case where Directors had improperly allotted 
 a large number of shares to themselves at an under- 
 value, it was held by the Court of Appeal that they 
 must account to the Company for the profits which 
 they had derived from the sale of such of the shares 
 thus allotted as they had disposed of, and that, as 
 to the shares which they retained, the proper measure 
 of the damages was, under the circumstances, not 
 
 
I20 
 
 THE DIRKCTOR'S HANDBOOK. 
 
 the highest price at which any shares of the Company 
 had been sold during the period for which the 
 Directors had held their shares, but the market value 
 of the shares at the dates at which they were 
 respectively allotted to the Directors, and that they 
 must pay to the Company the excess (if any) of 
 that market value above the sums which they had 
 paid to the Company for the shares respectively [S/iazu 
 V. Holland). 
 
 Directors who so use their powers as to obtain 
 benefits for themselves at the expense of the other 
 shareholders, without informing them of the facts, 
 cannot be allowed to retain those benefits, but must 
 account for them to the Company, so that all the 
 shareholders may participate in them [Alexander v, 
 Aulovmttc Telephone Co.). 
 
 Directors are not liable for all their mistakes, 
 but only for negligence which is in a business sense 
 culpable or gross. Nor is a Director liable for untrue 
 representations made to the shareholders if he honestly 
 believed the representations to be true, and had at 
 the time reasonable grounds for his belief {In re 
 National Bank of Wales, Ltd.). 
 
 A Director who is acting honestly himself is 
 entitled to trust the officers of the Company not to 
 conceal from him what they ought to report to him, 
 if he has reasonable ground for suspecting that they 
 are deceiving him [In re National Bank of Wales, Ltd.). 
 
 GENERAL DUTIES AND POWERS OF DIRECTORS. 12 1 
 
 A Director resigned his office, and his resignation 
 was accepted by the Board. After this his name 
 appeared as one of the Directors in a report pre- 
 sented by the Board to the shareholders. He took 
 no part in the preparation of the report or in 
 recommending the dividend proposed by it. The 
 Court held that, even if he knew that his name 
 appeared in the report as a Director, he was not 
 liable for the statements contained in it or the 
 recommendation of the dividend [In re National Bank 
 of Wales, Ltd.). 
 
 Directors cannot pay themselves for their services, 
 or make presents to themselves, out of the Com- 
 pany's assets, unless authorised to do so by the 
 instrument regulating the Company, or by the share- 
 holders at a properly convened meeting. The assets 
 of an incorporated Company, though a private Com- 
 pany, are not the property of the shareholders for 
 the time being, and if the Directors misapply those 
 assets by applying them to purposes for which they 
 cannot be lawfully applied by the Company itself, 
 the Company, on being properly set in motion, can 
 make them liable [In re George Newman & Co.). 
 
 A clause of the Articles of Association of a 
 Banking Company provided that the Company should 
 have a paramount lien on all the shares held by 
 any shareholder for all his debts to the Company, 
 and empowered the Directors in case of non-payment 
 
/ 
 
 122 
 
 THE director's HANDBOOK. 
 
 of any such debt, or in the event of the bankruptcy 
 of the shareholder, to sell his shares, and apply the 
 proceeds in discharge of his debt. Another clause 
 empowered the Directors to lend the funds of the 
 Company, or give credit, with or without security, 
 and provided that no advances without security 
 should be made, or credit given, to any Director. 
 It was held that the lien given by the first of the 
 above clauses was security within the second clause, 
 and that a loan might be made to a Director 
 without any other security than the lien, if the 
 Board considered his shares to be of sufficient value 
 [In re National Bank of Wales, Ltd.). 
 
 Should it be considered desirable by the Directors 
 that the Company should borrow money for the purpose 
 of its business, they are, as a rule, allowed to 
 mortgage the Company's property without there being 
 an expressed power given them to do so in the 
 Memorandum and Articles of Association ; at the same 
 time, where nothing is contained in the Memorandum, 
 a power to borrow is not implied " unless it be properly 
 incident to the course and conduct of the business 
 for its proper purpose {Blackburn Society v. Brooks), 
 
 Should, however, the Articles contain a prohibition 
 to borrow or mortgage, the Directors should be careful 
 not to borrow, whatever security they may be able to 
 offer, or however advantageous it may be considered 
 for the Company. 
 
 GENERAL DUTIES AND POWERS OF DIRECTORS. I 23 
 
 When it is desirable or necessary for a Company 
 to borrow, the Directors should discuss the various 
 means of raising the required amount before coming 
 to a decision. U the money be wanted for a short 
 period, it would be unwise to accept it on loan on 
 terms which would not allow of its being returned 
 until the expiration ot a period longer than that 
 for which it is required. On the other hand, if the 
 Directors wish to borrow for a considerable time, it 
 is preferable to do so in the first instance than to 
 accept a temporary loan on the chance of being 
 able to renew it if necessary. 
 
 When money is required for temporary purposes, 
 the best medium is usually the Company's Bankers ; 
 when wanted for a term, or indefinitely, the Directors 
 usually issue debentures or mortgage some of the 
 Company's property. 
 
 Where the Memorandum or Articles give a limited 
 power to borrow or mortgage, there is an implied veto 
 on exceeding the limit [Wenlock v. River Dee Co.). 
 
 Directors may become personally liable in damages 
 if they represent that they have authority to issue 
 debentures when such authority does not exist [Firbank 
 V. HuTnphreys). 
 
 Should Directors inadvertently borrow beyond their 
 powers, but the Company could, by altering its Articles 
 of Association or otherwise, have authorised the loan, 
 the best plan is for the Directors to call a meeting 
 
\ 
 
 / 
 
 124 
 
 THE DIRECTOR'S HANDBOOK. 
 
 of the shareholders, and obtain a ratification by the 
 Company of what they have done, and the loan then 
 becomes valid [Irvine v. Union Bank of Australia), 
 
 When the Memorandum or Articles confer a 
 borrowing power and do not restrain the Directors 
 m exercising this power, they may, acting under 
 their general powers of conducting the business, 
 borrow and mortgage without any further authority 
 from the Company. 
 
 A debenture, as defined by Mr. Seward Brice, Q.C., 
 is an instrument under seal, creating a charge, accord- 
 ing to its wording, upon the assets specified therein of 
 the Company, and to that extent conferring upon the 
 grantees a priority over other subsequent creditors 
 or existing creditors not possessed of such a charge. 
 This definition is, however, not strictly correct, as 
 there are three varieties of debentures issued by 
 Companies : — 
 
 1. Instruments which do not create any charge, 
 
 and which are, therefore, only bonds. 
 
 2. Debentures in accordance with the above 
 
 definition. 
 
 3. Mortgage Debentures. 
 
 An issue of debentures should be made by Directors 
 in a formal manner at a Board meeting. The seal of 
 the Company should be afiixed to each, and they should 
 be delivered to the subscribers when the Company has 
 received from them the full amount. Debentures when 
 
 GENERAL DUTIES AND POWERS OF DIRECTORS. I 25 
 
 sealed but not delivered are not "issued" [Mowail v. 
 Castle Steel and Iron Works). 
 
 In executing and issuing debentures Directors must 
 have regard to the Articles of Association, or their 
 validity will be affected if any irregularity is apparent 
 on the face of them. 
 
 Debentures may be issued at a discount without 
 any special authority being conferred by the Articles, 
 and, when so issued, may be taken by a Director 
 on the same terms without him being liable to refund 
 the discount. Directors, however, may not issue bonus 
 shares to subscribers for debentures [Welton v. Saffery). 
 
 Debentures may also be issued repayable with a 
 premium, in which event Directors must be careful 
 that the limit (if any) of the borrowing power be not 
 exceeded, as the bonus must be included in estimating 
 the amount secured {Ro7vell & Son v. Commissioners of 
 Inland Revenue). 
 
 The bonus, however, need not probably be included 
 if the limiting words are, "Provided that the amount 
 borrowed shall not exceed." 
 
 Where possible, it is very desirable to issue deben- 
 tures at a premium, in which case the premium may 
 be made use of for paying the expenses of the issue, 
 and the surplus (if any) can be added to the "Reserve" 
 or " Reserve Fund " by being invested. 
 
 Debenture holders are creditors of the Company, 
 and, therefore, the payment of the stipulated interest 
 
// 
 
 126 
 
 THR DIRFXTOR'S HANDBOOK. 
 
 is not dependent on the profits. The interest is, in 
 fact, a charge on the revenue, and must be allowed 
 for before the profits are determined, and Directors 
 should require all interest accrued to the date of the 
 balance sheet to be inserted among- the liabilities, and 
 consequently charged against the profits. 
 
 Should the Memorandum contain the necessary 
 authority, the Directors may charge or mortgage all 
 the property of a Company, including — 
 
 Book debts not yet due [BloouiP.r v. Union 
 
 Coal Co.). 
 Uncalled capital (Newton v. Anglo- Australian 
 Invest men f Co.). 
 Directors, however, are not authorised to charge 
 uncalled capital when their powers are limited to 
 charging as follows: — 
 
 (i) ** Property" or '* property and funds" [Bank 
 of Soutti Australia v. Abrahams). 
 
 (2) " Property and effects " [San/cey Brook Coal 
 
 Co.). 
 
 (3) '' Property present and future " [Re Streatham 
 
 Estates Co.), 
 
 (4) ** Real and personal estate" [Colonial Trusts 
 
 Corporation], 
 
 Directors should be careful, when money has been 
 
 borrowed on the security of any of the Company's 
 
 property, that the facts should be carefully set out in 
 
 the accounts presented to the shareholders, by only 
 
 I 
 
 GENERAL DUTIES AND POWERS OF DIRECTORS. I 27 
 
 placing amongst the assets in the balance sheets 
 the unencumbered assets or the estimated value of 
 the property charged, after allowing for the charge. 
 
 When a Company issues debentures secured by 
 a covering deed, requiring trustees for debenture 
 holders to be appointed, it has been the practice for 
 one or more of the trustees to be selected from the 
 Board of Directors. In a case where the Articles 
 of Association provided that a Director should not 
 hold a " place of profit under the Company," it was 
 held that a trustee of a covering deed relating to 
 debentures issued by a Company, who was nominated 
 and paid by the Company, was incapable of acting as 
 a Director [Astley v. Neiv Tivoli, Ltd.). 
 
 Dividends are declared by the Directors with the 
 sanction of the Company in general meeting, and 
 are, as a rule, paid to the members in proportion to 
 the number and amount paid up on their shares, but 
 before declaring a dividend the Directors should 
 refer to the clauses in the Articles of Association 
 relating to the payment of dividends, as some special 
 direction as to apportionment of profits may be there 
 given. In a case where the Articles provided that 
 no dividends should be payable except out of '* realised 
 profits," the Directors were, in a winding-up, held 
 personally liable for having paid dividends out of 
 estimated profits, which is usually done [Oxford 
 Building Society), 
 
 \ 
 
\ 
 
 / 
 
 128 
 
 THE director's HANDBOOK. 
 
 In the case ot Companies registered under Table 
 "A," or with Articles of Association containing similar 
 regulations as to payment of dividends, namely, that 
 they are to be paid to the shareholders in propor- 
 tion to their shares, the division must be made, not 
 according to the amount paid up on the shares, 
 but according to the nominal amount of the shares 
 [Oakbank Oil Co. v. Cruin). 
 
 When the Articles declare a dixidend to preference 
 shareholders is to be paid '* out of the net profits 
 of each year," and after such payment then a dividend 
 on the ordinary shares, it has been decided that 
 this declaration does not give a cumulative dividend 
 to the preference shareholders [Staples v. Eastniaii Co.) 
 But where the Articles declared that the profits 
 were to be applied, first, in paying a dividend on 
 the preference shares, and, secondly, on the ordinary 
 shares, the preference shareholders were entitled to 
 a cumulative dividend ( WM v. Earle). 
 
 The above few examples are sufficient to show 
 that Directors must be careful in what manner they 
 divide the profits of their Company among those 
 classes of shareholders who have a claim on them, 
 ev^en when eiirned. They must, however, first of all, 
 before considering the mode of distribution, be 
 thoroughly satisfied that the proposed dividend has 
 been legitimately earned. 
 
 Directors are forbidden to pay dividends except out 
 
 I 
 
 GENERAL DUTIES AND POWERS OF DIRECTORS. I 29 
 
 of the profits arising from the Company's business. 
 The mode of ascertaining these profits is not 
 prescribed by law, and, if Directors are careful to 
 make proper allowance for depreciation on plant, 
 bad debts, or other contingencies, they could not 
 be accused of having improperly paid a dividend 
 where it is subsequently shown the assets were not 
 really worth the value placed upon them at the 
 time. 
 
 If Directors pay dividends out of capital, they 
 are responsible not only for the amount they may 
 receive themselves, but for the whole of the dividends 
 thus improperly paid ; and, consequentl)/, when 
 Companies go into liquidation, Directors who have 
 been careless in this respect frequently find themselves 
 in the unfortunate position of being called upon to 
 replace money for which they have not had the 
 slightest benefit. 
 
 J:)irectors of a Company limited by shares may 
 receive payment from a shareholder of any amounts 
 remaining unpaid on his shares, and may pay out 
 of capital interest on sums so paid up in advance 
 of calls, either under Table "A" (if applicable) or 
 under provisions to the same effect in the Com- 
 pany's Articles of Association, provided they do 
 so in good faith and in the honest exercise of the 
 discretion confided to Directors (Lock v, Queensland 
 hivestment and Land Mortgage Co.), 
 
 
 ii 
 
I30 
 
 THE director's HANDBOOK. 
 
 The Directors of a Company which had not 
 obtained the sanction of the Court to a reduction of 
 its capital distributed a portion of the capital amongst 
 the shareholders, with their assent, and with notice 
 of the fact that the money so distributed was part 
 of the capital. The Company was subsequently 
 wound up, and the liquidator obtained an order that 
 the Directors should replace the money, on the 
 ground that the payment to the shareholders was 
 ultra vires. It was, however, held by the Court that 
 the Directors were entitled to an indemnity from 
 the shareholders [Moxhiun v. Grant). 
 
 *'The Companies Act of 1867" enacted that a limited 
 Company may, by taking power in its Memorandum 
 of Association, as originally framed or as altered by a 
 special resolution, declare the liability of its Directors 
 or Managers, or Managing Director, may be unlimited. 
 Notice must be given in writing to an intending 
 Director, before he accepts the appointment, that after 
 his election his liability will be unlimited; but, should 
 he not receive this notice, it will not relieve him of 
 his liability. 
 
 A Director of a Company in which the liability 
 of the Directors is unlimited must be careful that 
 this notice is given to a proposed new Director 
 before he joins the Board, as, should it not be given, 
 each Director is liable to a penalty not exceeding 
 a hundred pounds, and also liable for any damage 
 
 I 
 
 GENERAL DUTIES AND POWERS OF DIRECTORS. 131 
 
 which the new Director may sustain by reason of 
 his omission to give the notice. 
 
 In the event of a Company of this nature being 
 wound up, a Director is liable as though he were 
 a Member of an unlimited Company ; but, should he 
 have resigned his office before the Company went 
 into liquidation, he would only be liable for debts 
 and liabilities of the Company incurred during 
 his tenure of the Directorship, and he is not 
 liable at all should the Company go into liquida- 
 tion after he has ceased for a whole year to be a 
 Director. 
 
 The remuneration of the Directors is usually 
 prescribed by the Articles of Association, or left to 
 the annual general meeting of the shareholders. 
 They are not servants of the Company, and, therefore, 
 are not entitled to claim remuneration according to 
 the value of their services. If the Articles of a 
 Company fix a minimum sum as the remuneration 
 of the Directors, they are entitled to draw that sum, 
 and the payment of these fees is not dependent upon 
 profits being earned by the Company. The fees are 
 payable out of the assets, even although the Company 
 be insolvent; but should they not have taken their 
 fees previous to the Company going into liquidation, 
 they would not be allowed to claim priority as 
 for salary, although the clerks and servants of the 
 Company would be entitled to claim arrears of 
 
 K 2 
 
13 
 
 THE DIRECTOR'S PIANDBOOK. 
 
 salary for four months at the date of the winding-up 
 not exceeding £^o. 
 
 Should a Director be unable to obtain his fees 
 he can sue the Company for them, but, before com- / 
 mencing his action, he should resign his seat at the y 
 Board. "^ 
 
 Should the Directors themselves, or one or more 
 of the shareholders, consider the Directors should have 
 some remuneration for any past services, a special 
 notice of the intention to propose such a payment 
 to the Directors should be given to all the shareholders 
 previous to the general meeting, otherwise it would 
 not be in order, if voted, without such notice having 
 been given. In the same way, when it is proposed 
 to remunerate a particular Director, notice must be 
 given, as the Directors have no power to give any 
 extra remuneration to one of their own body without 
 special authority. 
 
 The fees of Directors are chargeable with duty 
 under the "Income Tax Act of 1842," and Directors 
 are not entitled to pay this Income Tax out of the 
 funds of the Company. A clause even in the Articles 
 cannot strictly allow this, for, as by the Act " All 
 contracts for the payment of any such annual payment 
 in full, without allowing such deduction for duty, shall 
 be utterly void," anything which constitutes a contract 
 to pay the remuneration of Directors without the 
 deduction of the duty must be void. 
 
 f 
 
 GENERAL DUTIES AND POWERS OF DIRECTORS. 1 33 
 
 There does not appear, however, any reason why 
 shareholders should not permit the payment of the 
 Income Tax, and, therefore, if they pass a resolution 
 voting the fees ^' Free of Income Tax" it is con- 
 sidered the Directors may then pay it out of the 
 funds of the Company. 
 
 The remuneration of Directors is usually entirely 
 or partially settled by the Articles of Association. 
 In the latter event the shareholders vote it entirely 
 as supplementary to the minimum sum prescribed 
 by the Articles, or the remuneration may be dependent 
 upon profits. When the Company in general meeting 
 vote the remuneration of the Directors, it is as a 
 gratuity and not a matter of right [Ex parte Cannon), 
 
 When the remuneration is by a percentage of 
 profits, it does not entitle the Directors to claim this 
 percentage on the profit made on the sale of the 
 whole business of the Company [Frames v. Bultfontein 
 Mining Co.), 
 
 It is advisable for Directors to draw any minimum 
 fees they are entitled to at regular dates. Sometimes, 
 in the case of an unsuccessful Company, Directors 
 allow their fees to stand over, so as to give the 
 Company temporary use of the money, but without 
 intending to forego their fees. This frequently leads 
 to trouble hereafter, and the best plan is to take 
 the fees in the ordinary way, and, unless the Articles 
 do not permit of the Company borrowing, for the 
 
i 
 
 '34 
 
 THK director's HANDBOOK. 
 
 Directors to lend the amount to the Company, taking 
 a special charge or debentures. 
 
 In a case where the Directors, having power to 
 receive payment of calls in advance, paid into the 
 bank the amount remaining uncalled on their shares, 
 and on the same day appropriated tlie money in 
 payment of their fees, it was held that there had 
 been no dona fide payment of calls in advance, and 
 that the Directors remained liable on their shares 
 [Re VVashinoton Diamond Mi nmg Co.). 
 
 When the funds of a Company are not sufficient 
 to pay all the creditors in full. Directors who pay 
 themselves in preference to the other creditors can be 
 made to repay the excess {Gaslight Improvement Co.). 
 Directors who take fees in excess of the proper 
 amount payable to them can also be made to refund 
 this excess [Re iVhttchall Conrt). 
 
 Should the Directors find that any of the clauses 
 of the Articles of Association of the Company are 
 prejudicial to the business, they should instruct their 
 solicitor to prepare fresh sections in lieu of those 
 they think undesirable to retain, and, when settled, 
 summon a general meeting of the shareholders, with 
 the object of a special resolution being passed to 
 alter the Articles as amended. 
 
 It must, however, be borne in mind that the 
 Articles cannot be so altered as to affect the general 
 constitution of the Company as defined and restricted 
 
 GENERAL DUTIES AND POWERS OF DIRECTORS. 135 
 
 by its Memorandum of Association. Any clause to 
 this effect would be void if passed by the meeting. 
 Should a Company require further capital, either 
 for the purpose of extending its business or for any 
 other reason, and the Directors have, after con- 
 sideration, decided it shall be raised by an issue of 
 shares, they must first of all ascertain whether the 
 powers conferred on them by the Memorandum and 
 Articles of Association admit of a further issue of 
 shares, and if not they should instruct the solicitor 
 to prepare the requisite notices for calling a meeting 
 of shareholders, together with the resolutions to be 
 submitted to the meeting, which will confer on the 
 Directors the powers they require. 
 
 They should, at the same time, take into con- 
 sideration the advisability of issuing shares of the 
 same class as those already held by the existing 
 shareholders, or whether the new capital shall be 
 raised by an issue of preference shares. Unless, 
 however, the Articles of Association authorise the 
 issue of preference shares, the Directors should not 
 issue any, as they render themselves personally liable. 
 If the Articles give power to issue a limited number 
 of preference shares, a special resolution of the 
 shareholders cannot increase the number. 
 
 When preference shares are already in existence, 
 and it is wished to issue a fresh series which will 
 take priority over them, the Directors must ascertain 
 
136 
 
 THE director's HANDBOOK. 
 
 Whether the conditions on which the existing 
 preference shares were issued permit of the proposed 
 new issue. If it was arranged that their rights came 
 first, they cannot be postponed [James v. Bncna 
 Ventura Syndicate). 
 
 The original preference shares may, however, be 
 postponed if the existing preference shares were 
 issued subject to the right of the Company to issue 
 fresh capital, having such preferences and priorities 
 as should be agreed upon [Pulbrook v. New Civil 
 Service Co-operation). 
 
 In issuing additional capital, Directors must be 
 as careful in the prospectus as in the case of a new 
 Company; and all statements should be verified by 
 experts, so as to avoid, as much as possible, any chance 
 of an action for compensation under *♦ The Directors' 
 Liability Act, 1890," should the expectations of the 
 Directors not be realised. 
 
 If brokerage or commission is paid to a stockbroker 
 for placing the shares of a new issue, it must be 
 charged against the Revenue Account of the period 
 in which the issue was made, otherwise the Directors 
 may be held personally liable for the amount. 
 
 The Act of 1867 authorises a Company, provided 
 it is in accordance with its regulations as originally 
 framed, or as altered by special resolution, to issue 
 share warrants to bearer in respect of either fully- 
 paid shares or stock. 
 
 
 GENERAL DUTIES AND POWERS OF DIRECTORS. 137 
 
 These share warrants entitle the bearer to the shares 
 or stock specified on the warrant, and the shares or 
 stock can be transferred from one person to another 
 by the mere delivery of the warrant. 
 
 The bearer of a share warrant is, subject to the 
 regulations of the Company, entitled on surrendering 
 his warrant for cancellation to have his name entered 
 as a member in the Register of Members. Whenever 
 the bearer of a share warrant claims this privilege, the 
 Directors should be careful to retain the share warrant 
 and cancel it, as the Company would be responsible 
 for any loss incurred by reason of the Company 
 entering in its Register of Members the name of any 
 bearer of a share warrant in respect of the shares 
 or stocks specified therein unless this were done. 
 
 The stamp duty on these warrants is equal to three 
 times the amount of the ad valorem stamp duty which 
 would be chargeable on a deed transferring the shares 
 or stock if the consideration for the transfer were of 
 the same nominal value, and a Company issuing a 
 share warrant without being duly stamped is liable 
 to a fine of £50. 
 
 So long as a Director retains his qualification, he 
 is as free as any other shareholder in dealing with his 
 shares, but, as it is in his power, and it is his duty, to 
 see that all formalities relating to the transfers are 
 duly observed, any irregularities would be construed 
 against him in a court of law. 
 
138 
 
 niK DIKKCTOR'S HANDBOOK. 
 
 Under no circumstances may a Company purchase 
 >ts own shares, and Directors should be careful not 
 to do so, as they would not be relieved from responsi- 
 bility were authority given them by an extraordinary 
 general meeting of the shareholders, or even if the 
 Memorandum and Articles sanctioned it, such sanction 
 being- ultra vires. 
 
 The Articles of Association usually contain a clause 
 empowering the Directors to forfeit the shares of those 
 shareholders who fail to pay their calls within a 
 certain period after the call has become due, provided 
 the formalities prescribed by the Articles have been 
 duly complied with. Before this power is acted upon, 
 the Directors must be very careful the requisite notices 
 have been served on the shareholders, and all the 
 provisions of the Articles been carried out in the 
 smallest detail. The slightest inaccuracy in comply- 
 ing with the conditions is, as against the Company, 
 as fatal as the greatest, should the shareholder whose' 
 shares have been forfeited take proceedings against 
 the Company to have the forfeiture set aside. 
 
 Should the Articles not contain this power of 
 forfeiture, it can be added by a special resolution 
 passed at an extraordinary general meeting, provided 
 it be passed bond fide with the intention of benefiting 
 the Company, and not with the object of enabling 
 Directors or other shareholders to escape from liability, 
 nor with any other improper intent. 
 
 GENERAL DUTIES AND POWERS OF DIRECTORS, 1 39 
 
 The power should, in fact, be exercised only 
 when it is considered desirable in the interests of 
 the Company : it should never be put in force for 
 the benefit of a shareholder, as it is clearly the duty 
 of Directors, after making a call, to do their utmost 
 to obtain payment from every shareholder. 
 
 Should the Directors, in the belief that a 
 shareholder is unable to pay his calls, agree to 
 forfeit his shares on terms, and before carrying out 
 this arrangement discover he has the means to pay, 
 they may refuse to forfeit the shares, and the Court 
 will not compel them to fulfil the contract. 
 
 Shares, when forfeited, are usually by the Articles 
 deemed to be the property of the Company, and can 
 be disposed of as the shareholders in general meeting 
 may determine ; but, notwithstanding the forfeiture, 
 the member is, as a rule, under the Articles (but 
 not otherwise;, liable to pay to the Company all calls 
 owing upon the shares at the time of forfeiture, 
 unless he has made a special arrangement with the 
 Company relieving him from this liability. 
 
 A Company is allowed to reduce its share capital 
 by special resolution of the shareholders. This step 
 is frequently taken when a Company has experienced 
 heavy losses, but, as when a reduction of capital is 
 contemplated the Directors should be advised through- 
 out by their solicitor and counsel, it is not necessary to 
 explain the process of carrying the scheme into effect. 
 
MO 
 
 THE director's HANDBOOK. 
 
 It may, however, be stated that the capital can 
 be reduced in one of the following ways :— 
 
 I. Diminishing the nominal amount of the 
 shares by writing off paid-up capital, leaving 
 the same amount unpaid. 
 
 2. Diminishing the nominal amount of the shares, 
 
 so as to have a less sum unpaid. 
 
 3. Diminishing the nominal amount of the 
 
 shares by combining numbers i and 2. 
 
 The resolution for reducing the capital does not 
 come into operation until an order of the Court 
 approving of this resolution has been registered by 
 the Registrar of Joint Stock Companies. 
 
 '*The Companies Act of 1867" allows a Company 
 by special resolution to subdivide all or any of its 
 existing shares into shares of a smaller amount than 
 is fixed by the Memorandum of Association ; but, of 
 course, the proportion between the amount thus 
 paid and the amount (if any; which is unpaid 
 on each share of the reduced amount must be 
 the same as was in the case of the original share 
 subdivided. 
 
 A statement of the number and the amount of 
 the shares into which the capital has been divided 
 by such special resolution must be embodied in 
 the Memorandum of Association in the same way 
 as all alterations in the Articles of Association 
 must be inserted in them. 
 
 GENERAL DUTIES AND POWERS OF DIRECTORS. 141 
 
 Directors should be very careful to insure all 
 the Company's property for its full value, and they 
 should not, under any consideration, allow any 
 property to remain uninsured because a high rate 
 of premium may be required to effect the insurance. 
 
 A Director is not bound to run any personal 
 risk of this nature, and should not listen to any 
 solicitations to incur personal liability in this or in 
 any other respect. 
 
 From time to time the Board should require 
 schedules of the property to be placed before them for 
 the purpose of seeing that the insurance is sufficient ; 
 the best time for this being after the accounts have 
 been prepared for the annual general meeting. 
 
 Where workmen are employed, it is also desirable 
 Directors should protect themselves against risks under 
 the Employers' Liability Act and the Workmen's Com- 
 pensation Act. Several sound Companies have been 
 established for the purpose of effecting insurances 
 against these risks, and, although the premium may 
 be heavy, still it is the duty of Directors to protect 
 the funds of the Company by effecting the in- 
 surance. 
 
 The protection of the capital of the Company should 
 be the first consideration of Directors, that of making 
 profits should be only secondary ; and, although many 
 charges on revenue may be saved, still it would be 
 a wrong policy of the Directors to endeavour to improve 
 
142 
 
 THE DIRFXTOR'S HANDBOOK. 
 
 the revenue account at the risk of any portion of the 
 shareholders' capital. 
 
 Directors who have business transactions with the 
 Company must be very careful they are specially 
 authorised by the Articles of Association. 
 
 A Director is not allowed to make any profits out 
 of the Company, unless specially authorised by its 
 Articles ; and, therefore, anyone proposing to join the 
 Board for the sake of any business that may accrue to 
 himself or his firm should ascertain whether he would 
 be allowed by the Articles to transact the business, 
 and, if not, he should, before joining, require the' 
 Articles to be altered so as to give him this power, 
 and although transactions may be perfectly boiui fide, 
 and he or his firm may only charge the same as' 
 though they were doing business with other com- 
 panies or firms ; still, if not legally authorised, he 
 could be compelled by a liquidator to refund to the 
 Company any profits he may have made, and 
 probably any Director authorising the transaction 
 would also be held personally liable. 
 
 Directors or any other persons would be liable for 
 the payment of the whole of the debts of a Company 
 were they to carry on business for a period of six months 
 after the number of its members had been reduced to 
 less than seven, so Directors should be careful that 
 the number should never be less than the statutory 
 seven. 
 
 WINDING UP. 
 
 Wo 
 
 CHAPTER VII. 
 
 WINDING UP. 
 
 WHEN the Directors are satisfied that the 
 Company is not carrying on its business 
 to a profit for its ordinary shareholders, they should 
 take seriously into consideration as to whether it is 
 desirable to continue operations on the chance of more 
 favourable conditions of trade arising which would 
 benefit the business. Should they, after delibera- 
 tion, think this not likely to happen, they should 
 endeavour to sell tlie business as a going concern, 
 if the Articles give them the power so to do, or 
 else decide upon putting the Company into voluntary 
 liquidation. In either case they should summon the 
 shareholders to a meeting for the purpose of considering 
 the situation, and for passing the necessary resolutions. 
 
 It is distinctly advisable for the Directors to 
 take this step in time, and thus avoid the risk of the 
 Company being wound up by the Court on the 
 petition of a creditor, as, when winding up is unavoid- 
 able, a voluntary winding up is, as a rule, far more 
 expeditious and economical. 
 
 It is, therefore, necessary that Directors should 
 
144 
 
 THE DIRECTOR'S HANDBOOK. 
 
 understand under what circumstances a Company may 
 be wound up voluntarily. They are as follows :- 
 
 I. Whenever the period, if any, fixed for the 
 duration of the Company by the Articles 
 of Association expires, or whenever the 
 event, if any, occurs upon the occurrence 
 of which it is provided by the Articles of 
 Association that the Company is to be 
 dissolved, and the Company in general 
 meeting has passed a resolution requiring 
 the Company to be wound up voluntarily. 
 
 2. Whenever the Company has passed a special 
 
 resolution requiring the Company to be 
 wound up voluntarily. 
 
 3. Whenever the Company has passed an extra- 
 
 ordinary resolution to the effect that it has 
 been proved to their satisfaction that the 
 Company cannot, by reason of its liabilities, 
 continue its business, and that it is advisable' 
 to wind up the same. 
 A special resolution is one passed by a majority 
 of not less than three-fourths of the members present 
 at a meeting, in person or by proxy, who are entitled 
 to vote, and confirmed by a subsequent resolution, 
 passed by a majority at a meeting held after an 
 interval of not less than fourteen days, nor more 
 than one month, from the date of the first meeting. 
 An extraordinary resolution is one passed by 
 
 WINDINCx UP. 
 
 H5 
 
 three-fourths of such members, and does not require 
 confirmation. 
 
 The first of the above three events practically 
 only happens when the Company has been formed 
 for the purpose of carrying on some business which 
 it is known is only to last for a definite period, 
 and the Articles of Association prescribe the time 
 fixed for the Company's duration. In such a case 
 Directors must be careful to call the meeting before 
 the expiration of this date, so that the Liquidator 
 may commence his duties immediately on the ex- 
 piration of the time named in the Articles. 
 
 The majority of Companies go into voluntary 
 liquidation by resolutions passed under the second 
 method ; but, where possible, the third method is more 
 expeditious, as it only requires one meeting. 
 
 On the Directors resolving that it is desirable the 
 Company shall be wound up, the necessary instruc- 
 tions should be given to their solicitor, and it is 
 therefore unnecessary to further describe the process 
 which has to be adopted for summoning the meetings. 
 At the first or only meeting of shareholders, as the 
 case may be, the Directors should be prepared with 
 a full explanatory statement, giving the reasons which 
 have caused them to take this important step. It is 
 then a part of their duty to recommend to the share- 
 holders to whom the winding up of the Company 
 is to be entrusted, and, although it is occasionally 
 
146 
 
 THE DIRECTOR'S HANDBOOK. 
 
 the practice for one of the Directors or the Secretary 
 of the Company to be selected for this office, the 
 practice is not to be recommended, as it affords 
 shareholders and creditors an opportunity of imputing 
 a desire to the Directors to avoid inquiry into their 
 management or the past history of the Company. It 
 is, therefore, desirable to nominate for the post of 
 Liquidator a Chartered Accountant, who, from the 
 nature of his profession, is naturally experienced in 
 conducting this class of business. If thought desirable, 
 a Committee should be appointed at the same time 
 to assist the Liquidator in his duties, or merely to 
 form a consultative body, with whom he may confer 
 on any matter of special importance. 
 
 The Directors should see that the resolution for 
 winding up the Company and the appointment of 
 Liquidator is inserted in the London Gazette and in 
 one or two papers published in the locality of the 
 registered office of the Company. 
 
 On the appointment of the Liquidator the duties 
 of the Directors are at an end, and their powers 
 cease. The books and papers and the official seal 
 should be handed to the Liquidator, and all the 
 property of the Company becomes vested in him. 
 
 When a resolution has been passed by a Company 
 to wind up voluntarily, the Court may make an Order 
 directing that the voluntary winding-up shall continue, 
 but subject to the supervision of the Court. 
 
 WINDING UP. 
 
 147 
 
 A Company can be wound up by the Court under 
 the following circumstances :— 
 
 (ly When the Directors make default in holding 
 the statutory meeting. 
 
 (2) When the Directors make default in filing 
 
 with the Registrar of Joint Stock Companies 
 the Report they are required to issue to 
 the shareholders at least seven days before 
 the statutory meeting. 
 
 (3) Whenever the Company has passed a 
 
 special resolution requiring the Company 
 to be wound up by the Court. 
 
 (4) Whenever the Company does not commence 
 
 its business within a year from its 
 incorporation, or suspends its business for 
 a w^hole year. 
 
 (5) Whenever the shareholders are reduced in 
 
 number to less than seven. 
 
 (6) Whenever the Company is unable to pay 
 
 its debts. 
 
 (7) Whenever the Court is of opinion that it 
 
 is just and equitable that the Company 
 
 should be wound up. 
 On the Winding-up Order being made by the 
 Court, one of the Official Receivers of the Board of 
 Trade becomes the provisional Liquidator, and he 
 continues to act as such until the permanent Liquidator 
 has been appointed. 
 
 L 2 
 
148 
 
 THE DIRECTOR'S HANDBOOK. 
 
 Should it, however, be thought advisable, in the 
 interests either of the creditors or shareholders, or 
 both, to carry on the business of a Company until it 
 can be disposed of, the Directors should request the 
 Official Receiver to apply to the Court for the 
 appointment of a special Manager. 
 
 The Directors should then cause to be prepared 
 a statement as to the affairs of the Company, made 
 out in the form prescribed by the Board of Trade, 
 and showing the particulars of the assets, debts, and 
 liabilities of the Company, the names, residences, 
 and occupations of the creditors of the Company, 
 the securities held by them respectively, the dates when 
 the securities were respectively given, and such further 
 or other information as may be prescribed by the Board 
 of Trade, or as the Official Receiver may require. 
 
 This Statement has to be submitted within fourteen 
 days from the date of the Order for winding up, or 
 within such extended time as the Court or the Official 
 Receiver may for special reasons appoint, and must 
 be verified by one or more of the Directors, and also 
 by the Secretary or other chief officer of the Company, 
 or at any rate by someone who has been either a 
 Director or officer of the Company, or who has taken 
 part in the formation of the Company, at any time 
 within a year before the Winding-up Order was made. 
 Should the Directors be unable to prepare this 
 Statement, the Official Receiver may allow to be paid 
 
 WINDING UP. 
 
 149 
 
 out of the assets of the Company such costs and 
 expenses incurred in connection with the preparation 
 of this Statement as he may think reasonable, subject 
 to an appeal to the Court. It is advisable, therefore, 
 for Directors to apply to the Official Receiver for 
 leave to employ a Chartered Accountant to prepare 
 this vStatement on their behalf. 
 
 Should any Director or other person who may 
 have been required by the Official Receiver to 
 furnish this Statement without reasonable excuse 
 make default in complying with these requirements, 
 he is liable to a fine not exceeding ^10 for every 
 day during which the default continues. 
 
 Where an Order has been made in a County 
 Court for the winding up of a Company, and a 
 Director or other officer of the Company, having been 
 required by the Official Receiver to submit to him 
 a statement of the affairs of the Company, under 
 Section 7 of "The Companies (Winding-up) Act, 1890," 
 has refused to do so, the Court has jurisdiction to 
 order such Director or other officer to submit such 
 statement, notwithstanding that Section 7, Subsection 
 (5), provides that ** if any person, without reasonable 
 excuse, makes default in complying with the require- 
 ments of this section, he shall be liable to a fine " 
 [In re New Par Consols y Lid.). 
 
 The Official Receiver may, if he thinks jit, make 
 a report in connection with the formation of the 
 
'50 
 
 THE director's HANDBOOK. 
 
 Company, and should, in his opinion, any fraud have 
 been committed by any person in the promotion or 
 formation of the Company, or by any Director or 
 other officer of the Company, which it is desirable 
 to bring to the notice of the Court, the Court may 
 d.rect such persons to attend before the Court on the 
 clay appointed and be publicly examined as to the 
 promotion or formation, or as to the conduct of the 
 busmess of the Company, or as to their conduct and 
 dealings as Directors or officers of the Company. 
 Ih.s examination is conducte.l before one of the 
 Registrars attached to the Winding-up Court. 
 
 Any Director or other person thus examined is 
 hrst of all sworn, and it is then his duty to answer 
 all such questions as the Court may put or allow to 
 be put to him. He may employ a solicitor, with or 
 without counsel, who are at liberty to put such 
 questions to him as the Court may allow for the 
 purpose of enabling him to explain or qualify any 
 answers given by him. 
 
 Notes of the examination are taken down in writing 
 and, later on, the Directors and other persons examined 
 have to attend at the Official Receiver s office, when 
 their evidence is handed to them and they are 
 required to go through the same, correct any inac 
 curacies, and sign each page, and their evidence may 
 be used against them should proceedings be taken. 
 The Court has no jurisdiction to order a Director 
 
 WINDING UP. 
 
 151 
 
 to be publicly examined under Section 8, Subsection 
 (3), of " The Companies (Winding-up) Act, 1890," unless 
 the Official Receiver has made a "further report" 
 under Subsection (2), from which it appears that, in 
 his opinion, a fraud has been committed by a person 
 in the promotion or formation of the Company, or 
 by a Director or other officer of the Company in 
 relation to the Company since its formation. Further, 
 the power to direct a public examination of the 
 persons mentioned in Subsection (3) does not apply 
 to any one of them against whom a prima facie 
 case of fraud has not been disclosed by the " further 
 report" of the Official Receiver [Ex parte Barnes). 
 
 In the winding up of a Company one of its Directors 
 was examined under Section 115 of the Act of 1862. 
 The Liquidator, subsequently, in the name of the 
 Company, commenced an action against the Directors 
 for alleged misfeasances, and in this action inter- 
 rogatories w^ere administered for the examination of 
 the above-mentioned Director. Before answering, the 
 Director applied in the w^inding up for liberty to 
 inspect and take an office copy of the deposition 
 taken at his private examination. He had already 
 put in a full defence to the Statement of Claim, and 
 offered to give an undertaking to use his best en- 
 deavours to prevent the communication of the deposition 
 to the other defendants, or their solicitors or counsel. 
 The Court held that leave to inspect and take a 
 
152 
 
 THE DIRECTOR'S HANDBOOK. 
 
 copy of the deposition ouglit to be granted [Tn re 
 Merchants' Fire Offi,ce). 
 
 On several occasions the question of the payment 
 of Directors' fees due at the date of a Company going 
 into liquidation has been before the Courts. 
 
 In a Company where the Articles required the 
 Directors to be shareholders, and their remuneration 
 was such sum as the Company might in general 
 meeting determine, the Court held a Director's 
 unpaid fees were due to him in his character of 
 member, and were to be postponed until the other 
 creditors had been paid in full [Ex parte Camwn). 
 
 In another case, where the Articles required the 
 Directors to possess a share qualification, but provided 
 that their remuneration should be a fixed annual 
 sum, it was held that, although these provisions in 
 the Articles were only part of the contract between 
 the shareholders inter se, the provisions were, on the 
 Directors being employed and accepting office on the 
 footing of them, embodied in the contract between 
 the Company and the Directors ; that the remuneration 
 was not due to the Directors in their character of 
 members, but under the contract so embodying the 
 provisions; and that, in the winding up of the 
 Company, the Directors were entitled to rank as 
 ordinary creditors in respect of the remuneration 
 due to them at the commencement of the winding up 
 [Ex parte Beck<uith). 
 
 f 
 
 WINDING UP. 
 
 ^53 
 
 The arrears of salary due to a Managing 
 Director, in which Directors were obliged to be 
 shareholders, and damages for breach of contract 
 by the Company to employ him as Managing Director 
 at such salary, were held not to be debts due to him 
 in his character of a member, and that he was entitled 
 to prove in competition with the other creditors [Re 
 Dale and Plants Ltd.). 
 
 A Managing Director is not a clerk or servant 
 within the meaning of '* The Preferential Payments in 
 Bankruptcy Act, 1888," and therefore in a winding 
 up he is not entitled to any preferential payment 
 [Hopkins V. Newspaper Proprietary Syndicate, Ltd). 
 
154 
 
 THE DIRECTOR'S HANDBOOK. 
 
 APPENDIX. 
 
 THE DIRECTORS' LIABILITY ACT, ,890. 
 (53 & 54 Vict., Chapter 64.) 
 
 An Act to Amhxo the Law kelating to the L.ab.utv ok D.k.ctors 
 
 AND OTHERS FOR STATEMENTS ,N ProsPECTL'SK, ... 
 DoC.MENT.SSOUC,T.O A..UCAT,ONSEOR S^E::: D^LT^r 
 
 [i8th Au^mst, 1890. 
 -Ivae and con.en. of ,he Lords Spiritual and Temporal .nd 
 
 or .he sa™:~io:r "■■"'"' "'"'""™' -"''-'' -' 'y '"^ -'-'>• 
 
 1. This Act may be cited as the Directors' Liability Act ,890 
 to ,8^. '"'' "^'' '■"" '"^ ^""'™'='' ^^ ""^ *'"■ ""^ <-■»■"■'-■- Acts, ,86. 
 
 3. — (I) Where after the passing of th.\ An o 
 -i'es per.o„s to subscribe for shies i„^; dt,,;:: r IrrC l^r: 
 
 ::r:/r'""""" "'■" ^ - *~f 'heco,„pa„yat .,::::' 
 company or\a. haw„;:::i;"::;:r:rc,r : tiv'''-'^'"^ " :^ 
 
 ™n,ediately or after an interval of time, and eve: ll^or 1 ri: 7 
 
 ::;.rir;:p:::;;::r:',r "-- "?"^ '--•- - -- 
 
 shares, debentures, 'or Z:: " j.k 1^ ^ f T"*'"^' "' '"' 
 
 THE directors' LIABILITY ACT, 1890. 
 
 155 
 
 >5tatement, that he had reasonable ground to beheve, and did up to the 
 time of the allotment of the shares, debentures, or debenture stock, as 
 the case may be, believe, that the statement was true ; and 
 
 (b) With respect to every such untrue statement purporting to be a 
 statement by or coQtained in what purports to be a copy of or extract 
 from a report or valuation of an engineer, valuer, accountant, or other 
 expert, that it fairly represented the statement made by such engineer, 
 valuer, accountant, or other expert, or was a correct and fair copy of or 
 extract from the report or valuation. Provided always, that notwith- 
 standing that such untrue statement fairly represented the statement 
 made by such engineer, valuer, accountant or other expert, or was a 
 correct and fair copy of an extract from the report or valuation, such 
 director, person named, promoter, or other person, who authorised the 
 issue of the prospectus or notice as aforesaid, shall be liable to pay 
 compensation as aforesaid if it be proved that he had no reasonable 
 ground to believe that the person making the statement, report, or 
 valuation was competent to make it ; and 
 
 (c) With respect to every such untrue statement purporting to be a 
 statement made by an official person or contained in what purports to 
 be a copy of or extract from a public official document, that it was a 
 correct and fair representation of such statement or copy of or extract 
 from such document, 
 
 or unless it is proved that having consented to become a director of the 
 company he withdrew his consent before the issue of the prospectus or notice, 
 and that the prospectus or notice was issued without his authority or consent, 
 or that the prospectus or notice was issued without his knowledge or consent, 
 and that on becoming aware of its issue he forthwith gave reasonable public 
 notice that it was so issued without his knowledge or consent, or that after 
 the issue of such prospectus or notice and before allotment thereunder, he, on 
 becoming aware of any untrue statement therein, withdrew his consent thereto, 
 and caused reasonable public notice of such withdrawal, and of the reason 
 therefor, to be given. 
 
 (2) A promoter in this section means a promoter who was a party to 
 the preparation of the prospectus or notice, or of the portion thereof containing 
 such untrue statement, but shall not include any person by reason of his acting 
 in a professional capacity for persons engaged in procuring the formation of 
 the company. 
 
 (3) Where any company existing at the passing of this Act, which has 
 issued shares or debentures, shall be desirous of obtaining further capital by 
 subscriptions for shares or debentures, and for that purpose shall issue a 
 prospectus or notice, no director of such company shall be liable in respect of 
 
156 
 
 THE DIRECTOR'S HANDBOOK 
 
 any s,a,e,„e,U therein, unles,s he .hall have authoriscl the issue of such 
 prospectus or notice, or have adopted or ratified the same. 
 
 (4) In this section the word '.expert" includes any person whose 
 |>rofession Kives authority to a statement made by him. 
 
 4. Where any such prospectus or notice as aforesaid contains the name 
 
 drect„?;r ";' r'T "' "" "'""™^' °^ -•'-„« agreed to become a 
 dtreeto thereo , and such person has not consented to becon.e a director or 
 has wnhdraw,. his consent before the issue of such prospectus or notice, and 
 has not authorised or consented to the issue thereof, the .brectors of the 
 company, except any without whose knowledge or consent the pr„s,«ctus or 
 notice was issued, and any other person who authorised the issue of such 
 prospectus or notice, shall be liable to in.lemnify the person named as a 
 director of the company, or as having agreed to become a director thereof as 
 aforesaid against all damages, costs, charges, and expenses to which he may 
 be made liable by reason of his name having been insertd in the prospectus 
 or notice, or in defending himself against any action or legal proceedings 
 brought against him in respect thereof. 
 
 6. Every person who by reason of his being a director, or named as a 
 director or as having agreed to become a director, or of his h.ving authorised 
 the issue of the prospectus or notice, has become hable to make any payment 
 under the provisions of this Act, shall be entitled to recover contribution as 
 in ca.ses of contract, from any other person who, if sued separately, would 
 have been liable to make the same payment. 
 
 CALLS ON SHARES. 
 
 157 
 
 TABLE A. 
 
 The Regulations for the Management of a Company 
 
 LIMITED BY SHARES, REGISTERED WITHOUT ARTICLES OF 
 
 Association. 
 
 SHARES. 
 
 1. If several persons are registered as joint holders of any Share, any 
 one of such persons may give effectual receipts for any dividend payable 
 in respect of such Share. 
 
 2. Every Member shall, on payment of One Shilling, or such less sum 
 as the Company in General Meeting may prescribe, be entitled to a 
 Certificate under the common seal of the Company, specifying the Share 
 or Shares held by him and the amount paid up thereon. 
 
 3. If such Certificate is worn out or lost, it may be renewed on 
 payment of One Shilling, or such less sum as the Company in General 
 Meeting may prescribe. 
 
 CALLS ON SHARES. 
 
 4. The Directors may from time to time make such Calls upon the 
 Members in respect of all moneys unpaid on their Shares as they think 
 lit, provided that tvwnty-one days' notice at least is given of each Call, 
 and each Member shall be liable to pay the amount of Calls so made to 
 the persons and at the limes and places appointed by the Directors. 
 
 5. A Call shall be deemed to have been made at the time when the 
 resolution of the Directors authorising such Call was passed. 
 
 6. If the Call payable in respect of any Share is not paid before or 
 on the day appointed for payment thereof, the holder for the time being 
 of such share shall be liable to pay interest for the same at the rate ot 
 Five Pounds per cent, per annum from the day appointed for the payment 
 thereof to the time of the actual payment. 
 
 7. The Directors may, if they think fit, receive, from any Member 
 willing to advance the same, all or any part of the moneys due upon the 
 Shares held by him beyond the sums actually called for ; and upon the 
 moneys so paid in advance, or so much thereof as from time to time exceeds 
 the amount of the Calls then made upon the Shares in respect of which 
 such advance has been made, the Company may pay interest at such rate 
 as the Member paying such sum in advance and the Directors agree upon. 
 
'58 
 
 THE DIRECTOR'S HANDBOOK. 
 
 TRANSFERS OF SHARES. 
 
 8. The instrument of transfer „f .„y share in the Company .hull be 
 
 xecuteO hoth by the transferor and transferee, an.l the transferor .shall b 
 
 deemed to rema.n a holder of such Share nntil the name of the transferee 
 IS entered ,n the Register book in respect thereof. 
 
 9. Shares in the Company shall be transferred in the followinj; form :- 
 
 . ,' '" "^ ' '" consideration of the sum of p„„n,|, 
 
 paid to me by C.Z)., of , . , ""'" 
 
 Slid /"/) ,1,. cu r ..t . <1" hereby transfer to the 
 
 s.lid CO. the Share [or Sh.aresJ numbered 
 
 standi!!}; in my name in the books of the 
 
 Company, to hold unto the sai.l CD., his executors, administrators and 
 
 ass.«"s s.,bject to the several conditions on which I held the sa.ne at the 
 
 .me of the execution hereof; and I, the said CD., do hereby a-ree to 
 eake .he sa,d Share [„. Shares] subject to the same conditions. As wL^s 
 our hands the .|,,y „,■ 
 
 .0 The Co,„pany may .lecline to register any transfer of Shares made 
 by a jMe!nber «ho is indebted to them. 
 
 M. l-he .....nsfer books shall be closed .luring the fourteen day. 
 .m!ne.l,ately preceding the Ordi!,a,y General Meeting in each year. 
 
 TRANSMISSION OF SHARES. 
 
 12. The executors or administrato,-s of a deceased Member shall be the 
 only pe,sons recognised by the C„!npany as having any title to his Share 
 
 13. Any person becoming entitled to a Sha,e in consequence of the 
 death, bank,uptcy, or insolvency of any Member, or in consequence of the 
 marr,.age of any female Member. m.ay be registered as a .Member upon such 
 
 ComiZy '""'""'' '' ™^ ^~" "'"' '" '™' '" "'""■■■"' ''>• "'^ 
 
 of !u' t"\ 'T"" "'''" ''■■'' ^'"""' '-■"""•-"'' '" ■•' "^^"^ '" consequence 
 o he death, bankruptcy, or in^lvency of any .Member, or in con4.ence 
 of the marnage of any female .Me.nber, may, instead of being registercl 
 h,!nself, elect to have some person to be named by hi!„ ,egis,erc:i as a 
 transferee of such Share. 
 
 15. The person so becomincr entitled shall testify such election by 
 executm^^ to his nominee an instrument of transfer of such Share 
 
 16. The n^strument of transfer shall be presented to the Company 
 
 accompanied with such evidence as the Directors may require to pjj 
 
 be tule of the transferor, and thereupon the Company shall re^iste the 
 transferee as a Member. 
 
 CONVERSION OB' SHARES INTO STOCK. 
 
 FORFEITURE OF SHARES. 
 
 1.59 
 
 17. If any Member fails to pay any Call on the day appointed for 
 payment thereof, the Directors may at any time thereafter, during such 
 time as the Call remains unpaid, serve a notice on him requiring him to 
 pay such Call, together with interest and any expenses that may have 
 accrued by reason of such non-payment. 
 
 18. The notice shall name a further day on or before which such Call, 
 and all interest and expenses that have accrued by reason of such non- 
 payment, are to be paid. It shall also name the place where payment is 
 to be made (the place so named being either the Registered Office of 
 the Company or some other place at which Calls of the Company are 
 usually made payable). The notice shall also state that, in the event of 
 non-payment at or before the time and at the place appointed, the Shares 
 in respect of which such Call was made will be liable to be forfeited. 
 
 Kj. If the requisitions of any such notice as aforesaid are not complied 
 with, any Share in respect of which such notice has been given may at 
 any time thereafter, before payment of all Calls, interest, and expenses 
 due in respect thereof has been made, be forfeited by a resolution of the 
 Directors to that effect. 
 
 20. Any Share so forfeited shall be deemed to be the property of the 
 Company, and may be disposed of in such manner as the Company in 
 General Meeting thinks fit. 
 
 21. Any Member whose Shares have been forfeited shall, notwith- 
 stan(hng, be liable to pay to the Company all Calls owing upon such 
 Shares at the time of the forfeiture, 
 
 22. A statutory declaration in writing, that the Call in respect of a 
 Share was made and notice thereof given, and that default in payment of 
 the Call was made, and that the forfeiture of the Share was made by a 
 resolution of the Directors to that effect, shall be sufficient evidence of 
 the facts therein stated as against all persons entitled to such Share, and 
 such declaration and the receipt of the Company for the price of such 
 Share shall constitute a good title to such Share, and a certificate of 
 propiietorship shall be delivered to a purchaser, and thereupon he shall 
 be deemed the holder of such Share discharged from all Calls due prior 
 to such purchase, and he shall not be bound to see to the application of 
 the purchase money, nor shall his title to such Share be affected by any 
 irregularity in the proceedings in reference to such sale. 
 
 CONVERSION OF SHARES INTO STOCK. 
 
 23. The Directors may, with the sanction of the Company previously 
 given in General Meeting, convert any paid-up Shares into Stock. 
 
l6o 
 
 THE DIRF-CTOR'S HANDBOOK. 
 
 hnlH ?™ Ti '"'"" '"™ ^™^-"'«' '"•<> Stock, the severa 
 
 holders of such Stock .ay thencefonh transfer .heir respe .ive in er ts 
 . re,n, or any part of such interests, in the san,e manner'and suLct 
 the a^e regulat.ons as and subject to which any Shares in the Ca^it 
 
 lit """"' """' "' """'''"''' "■ - -- '-"-o - circumstance! 
 
 35. The several holders of Stock shall be entitled to participate in 
 he d,v,de„ds and profits „f the Company, according to th atnoun Tf 
 
 thetr res,«ct.vc .nterests in such Stock; and such interests sha^l .„ 
 roporfon to the amount thereof, confer on the holders thereof r pe^: 
 
 Mvel the ame prtv.leges and advantages for the purpose of voting a. 
 
 Meettngs o. .he Company, and for o.her pun,oses, Is ' would ha bee 
 
 o that none of such pnvileges or advantages, except the participati™ in 
 e d.v.dends and profits of the Company, shall be conferrcl by Tn u 
 aluiuot par. of consolidate.! Stock as would not if existing in Sha es e 
 conferred such privileges or advantages. sna.cs ha^e 
 
 INCREASE IN CAPITAL. 
 
 .6. The Directors may, wi.h the sanction of a special resolution o 
 he Company prev.ously given in General Meeting, incLse its Capital by 
 the ssue of new Shares; such aggregate increase to be of such Amount 
 
 Tui : :r ter: °f -rrr- -- - -^^ --">■ 
 
 think e..pedien,. " ' """""" " «'™"' "^ "■' ^ireCors 
 
 27. Subject to any .lirection to the contrary that may be given by the 
 
 oft red o the Members n, proportion to the existing Shares hel.l by them 
 
 to wh't T'^'^'l '' ""'' '' ""'- '"-"■^'"^ ''- --"" o 'sWs 
 .0 vh ch he Member is entitled, and limiting a time within which the 
 offe,, ,f not .accepted, will be deemed to be declined ; and after the expirat on 
 of such ttme, or on the receipt of ,a„ intimation from the Memu" " 
 
 horn such nottce is given that he declines to accept the Shares offered 
 the Dtrectors m.ay dispose of the same in such m.an„er as they think mosi 
 benehcial to the Company. ^ ^^^^ 
 
 as part ffTh""?"" 7r" T' """°" "' "^" ''>^'^^ ^'■^" ""^ ^"-'•ered 
 as part of the ongn.al Cap.tal, and shall be subject to the same provisions 
 
 w,th reference to the payment .,f Calls and the forfeiture of Sh on 
 non-payment of Calls or otherwise, as if it had been Dart of ,hT , 
 
 Caphu], P ^'^^ original 
 
 PROCEEDINGS AT GENERAL MEETINGS. 161 
 
 GENERAL MEETINGS. 
 
 29. The first General Meeting shall be held at such time, not being 
 more than six months after the registration of the Company, and at such 
 place as the Directors may determine. 
 
 30. Subsequent General Meetings shall be held at such time and place 
 as may be prescribed by the Company in General Meeting ; and, if no 
 other time or place is prescribed, a General Meeting shall be held on the 
 first Monday in February in every year, at such place as may be determined 
 by the Directors. 
 
 31. The above-mentioned General Meetings shall be called Ordinary 
 Meetings ; all other General Meetings shall be called Extraordinary. 
 
 32. The Directors may, whenever they think lit, and they shall, upon 
 a requisition made in writing by not less than one-fifth in number of the 
 Members of the Company, convene an Extraordinary- General Meeting. 
 
 33. Any requisition made by the Members shall express the object of 
 the Meeting proposed to be called, and shall be left at the Registered 
 Office of the Company. 
 
 34. Upon the receipt of such requisition the Directors shall forthwith 
 proceed to convene an Extraordinary General Meeting. If they do not 
 proceed to convene the same within twenty-one days from the date of 
 the requisition, the requisitionists, or any other Members amounting to the 
 required number, may themselves convene an Extraordinary General Meeting. 
 
 PROCEEDINGS AT GENERAL MEETINGS. 
 
 35. Seven days' notice at the least, specifying the place, the day, and 
 the hour of Meeting, and, in case of special business, the general nature 
 of such business, shall be given to the .Members in manner hereinafter 
 mentioned, or in such other manner, if any, as may be prescribed by the 
 Company in General Meeting; but the non-receipt of such notice by any 
 Member shall not invalidate the proceedings at any General Meeting. 
 
 36. All business shall be deemed special that is transacted at an 
 Extraordinary Meeting, and all that is transacted at an Ordinary Meeting, 
 with the exception of sanctioning a dividend and the consideration of the 
 accounts, balance-sheets, and the ordinary report of the Directors. 
 
 37. No business shall be transacted at any General Meeting, except 
 the declaration of a dividend, unless a quorum of members is present at 
 the time when the Meeting proceeds to business ; and such quorum shall 
 be ascertained as follows : that is to say, if the persons who have taken 
 Shares in the Company at the time of the Meeting do not exceed ten 
 in number, the quorum shall be five ; if they exceed ten, there shall be 
 
 M 
 
 It 
 
l62 
 
 THE DIRECTOR'S HANDBOOK. 
 
 ackled to the above quorum one for every five additional Men.bers up to 
 fifty, and one for every ten additional Afen.bers after fifty, with this linntation 
 that no (luorum shall in any case exceed twenty. ' 
 
 3S. n within one hour from the time appointed for the Meeting a 
 quorum is not present, the Meeting, if convened upon the requisition of 
 Members, shall be dissolved : in any other case it shall stand adjourned to 
 the same day in the next week, at the same time and place ; and if at 
 .uch adjourned greeting a <juorum is not present, it shall be adjourned 
 s/ne die. 
 
 39. The Chairman (if any) of the Board of Directors shall preside as 
 Chairman at every (xeneral Meeting of the Company. 
 
 40. If there is no such Chairman, or if at any Meeting he is not 
 present within fifteen minutes after the time appointed for holding the 
 Meeting, the Members present shall choose some one of their number to 
 be Chairman. 
 
 41. The Chairman may, with the consent of the Meeting, adjourn 
 any Meeting from time to time and from place to place, but no business 
 sh^l be transacted at any adjourned Meeting other than the business left 
 unfinished at the Meeting from which the adjournment took place 
 
 42. At any General Meeting, unless a poll is demanded by at least 
 five Members, a declaration by the Chairman that a resolution has been 
 carried, and an entry to that eff'ect in the book of proceedings of the 
 Company, shall be suflicient evidence of the fact, without proof of 
 the number or proportion of the votes recorded in favour of or against 
 such resolution. 
 
 43- If .1 poll i.s demanded by five „r more .Members, it shall be taken 
 in such manner as the Chairnmn directs, and the result of such poll shall 
 be deemed to be the resolution of the Company in General Meetin<. ' I„ 
 the case of an equality of votes at any General Meetit.g, the Cha7rn,an 
 Shall be entitled to a second or casting vote. 
 
 VOTES OF MEMBERS. 
 
 44- Every Member shall have one vote for every Share up to ten- he 
 shall have an additional vote for every i.s. Shares beyond the first ' ten 
 Shares up to one hundred, and an additional vote for every ten Shares 
 beyond the first hundred Shares. 
 
 45. l^ any Member is a lunatic or idiot, he may vote by his committee 
 curator bonis, or other legal curator. ' 
 
 46. If one or more persons are jointly entitled to a Share or Shares 
 the Member whose name stands first in the Register of Members as one 
 of the holders of such Share or Shares, and no other, shall be entitled 
 to vote in respect of the same. 
 
 DIRECTORS. 
 
 163 
 
 47. No Member shall be entitled to vote at any General Meeting 
 unless all Calls due from him have been paid, and no Member shall be 
 entitled to vote in respect of any Share that he has acquired by transfer 
 at any Meeting held after the expiration of three months from the 
 registration of the Company, unless he has been possessed of the Share 
 in respect of which he claims to vote for at least three months previously 
 to the time of holding the Meeting at which he proposes to vote. 
 
 48. Votes may be given either personally or by j)roxy. 
 
 49. The instrument appointing the proxy shall be in writing, under the 
 hand of the appointor, or if such appointor is a corporation, under their 
 common seal, and shall be attested by one or more witness or witnesses : no 
 person shall be appointed a proxy who is not a Member of the Company. 
 
 50. The instrument appointing a proxy shall be deposited at the 
 Registered Office of the Company not less than seventy-two hours before 
 the time for holding the Meeting at which the person named in such 
 instrument proposes to vote, but no instrument appointing a proxy shall 
 be vaUd after the expiration of twelve months from the date of its 
 execution. 
 
 51. Any instrument appointing a proxy shall be in the following 
 form : — 
 
 I of 
 
 being a Member of the 
 and entitled to 
 appoint 
 
 Company, Limited, 
 in the county of 
 
 Company, Limited, 
 Note [or votes], hereby 
 
 of as my proxy, to 
 
 vote for me and on iny behalf at the [Ordinary or Extraordinary, 
 as the case may be^ General Meeting of the Company to be held on 
 
 the day of , and at any adjournment 
 
 thereof [or at any Meeting of tlie Company that may be held in 
 the year ]. 
 
 As witness my hand this day of 
 
 Signed by the said in the presence of 
 
 DIRECTORS. 
 
 52. The number of the Directors, and the names of the first Directors, 
 shall be determined by the subscribers of the ^Memorandum of Association. 
 
 53. Until Directors are appointed, the subscribers of the Memorandum 
 of Association shall be deemed to be Directors. 
 
 54. The future remuneration of the Directors, and their remuneration 
 for services performed }Meviously to the First General ]Meeting, shall be 
 determined by the Company in General Meeting. 
 
 M 2 
 
164 
 
 THE director's HANDBOOK. 
 
 POWERS OF DIRECTORS. 
 
 55. The business of the Company shall be managed by tlie Directors, 
 who may pay all expenses incurred in j;etting uj) and registering the 
 Comj^any, and may exercise all such jiowers of the Company as are not 
 by the foregoing Act or by these Articles required to be exercised by 
 the Company in General Meeting, subject nevertheless to any regulations 
 of these Articles to the provisions of the foregoing Act, and to such 
 regulations being not inconsistent with the aforesaid regulations or 
 provisions, as may be prescribed by the Company in General Meeting ; 
 but no rcguhUion made by the Company in General Meeting shall 
 invalidate any prior act of the Directors which would ha^e been valid 
 if such regulation had not been made. 
 
 50. The continuing Directors may act notwithstanding any vacancy in 
 their body, 
 
 DISQUALIFICATION OF DIRECTORS. 
 
 57. The oflice of Director shall be vacated— 
 
 If he holds any other office or place of profit under the 
 
 Company ; 
 If he becomes bankrupt or insolvent ; 
 
 If he is concerned in or participates in the profits of any 
 contract with the Company. 
 But the above rules shall be subject to the following exceptions: That 
 no Director shall vacate his office by reason of his being a Member of 
 any Company which has entered into contracts with or done any work 
 for the Company of which he is a Director; nevertheless, he shall not 
 vote in respect of such contract or work ; and if he does so vote his vote 
 shall not be counted. 
 
 ROTATION OF DIRECTORS. 
 
 58. At the first Ordinary Meeting after the registration of the 
 Company, the whole of the Directors shall retire from office ; and at the 
 first Ordinar>- Meeting in every subsequent year one-third of the Directors 
 for the time being, or if their number is not a multiple of three, then 
 the number nearest to one-third shall retire from office. 
 
 59. The one- third or other nearest number to retire during the first 
 and second years ensuing the first Ordinary- Meeting of the Company shall, 
 unless the Directors agree among themselves, be determined by ballot; 
 in every subsequent year the one-third or other nearest number who have 
 been longest in office shall retire. 
 
 60. A retiring Director shall be re-eligible. 
 
 PROCEEDINGS OF DIRECTORS. 
 
 165 
 
 Oi. The Company at the General Meeting at which any Directors 
 retire in manner aforesaid shall fill up the vacated offices by electing a 
 like number of persons. 
 
 62. If at any Meeting at which an election of Directors ought to take 
 place, the places of the vacating Directors are not filled up, the Meeting 
 shall stand adjourned till the same day in the next week, at the same 
 time and place ; and if at such adjourned Meeting the places of the 
 vacating Directors are not filled up, the vacating Directors, or such of 
 them as have not had their places filled up, shall continue in office until 
 the Ordinary Meeting in the next year, and so on from time to time 
 until their places are tilled up. 
 
 63. The Company may from time to time, in General Meeting, 
 increase or reduce the number of Directors, and may also determine in 
 what rotation such increased or reduced number is to go out of office. 
 
 64. Any casual vacancy occuiring in the Board of Directors may be 
 tilled up by the Directors, but any person so chosen shall retain his office 
 so long only as the vacating Director would have retained the same if 
 no vacancy had occurred. 
 
 65. The Company in General Meeting may, by a special resolution, 
 remove any Director before the expiration of his jjeriod of office, and 
 may, by an ordinary resolution, appoint another person in his stead ; the 
 person so appointed shall hold office during such time only as the Director 
 in whose i>lace he is appointed would have held the same if he had not 
 been removed. 
 
 PROCEEDINGS OF DIRECTORS. 
 
 66. The Directors may meet together for the despatch of business, 
 adjourn, and otherwise regulate their Meetings as they think fit, and 
 determine the quorum necessary for the transaction of business. Questions 
 ari'sing at any Meeting shall be decided by a majority of votes ; in case 
 of an equality of votes the Chairman shall have a second or casting vote. 
 A Director may at any time summon a Meeting of the Directors. 
 
 67. The Directors may elect a Chairman of their Meetings, and determine 
 the jieriod lor which he is to hold office ; but if no such Chairman is 
 elected, or if at any Meeting the Chairman is not present at the time 
 appointed for holding the same, the Directors present shall choose some 
 one of their number to be Chairman of such Meeting. 
 
 68. The Directors may delegate any of their powers to Committees 
 consisting of such Member or Members of their body as they think fit ; 
 any Committee so formed shall, in the exercise of the powers so delegated, 
 conform to any regulations that may be imposed on them by the Directors. 
 
 69. A Committee may elect a Chairman of their jNIeeting ; if no such 
 Chairman is elected, or if he is not present at the time appointed for 
 
i66 
 
 THE DIRECTOR'S HANDBOOK. 
 
 holding the san.e the Members present shall choose one of their number 
 to 1)0 Chairman of such lIcctinK. 
 
 ;o. A Commiltee may mcel and a.Ij„u,n as Ihcy think proper. 
 Ottesfons ar,s,n,. at any Meeting shall he ,leterminc,i by a majority of 
 votes of the Men.bers present; and in case o( an equality of votes the 
 Chairman .hall have a second or caslinf; vole. 
 
 7.. All acts done by any Meeting of^he Directors, or of a Committee 
 
 l^T, V' T" '''""" •■■'""'•' "' ' '''''•^'"'' ^'■••'"' no'-i>l-tandi„g 
 th..t tt be aflerwar<ls discovered that there was some defect in the appoint- 
 
 ...em of any such Directors or persens acting as aforesaid, or that they 
 
 or any of them were <lis,,ualified, be as valid as if eve,^- such ,,erson had 
 
 been duly appomted and was qualified to be a Director. 
 
 DIVIDENDS. 
 72. The Directors m.->y, w,lh the sanction of the Company in General 
 
 thet'sharf " '" '' """ '" "' ^''""^"^ '" "^I^-"- '° 
 
 73- No dividen.1 shall be payable except out of the profits arising from 
 the busmess of the Company. 
 
 oul'rf^h'' '"r'^r T'' '''"*•■ ^'«""™'="<«"« ™y 'lividend, set aside 
 out of he proht. of the Company such sum as they think proper as a 
 Rcserve.l lun.l to meet contingencies, or for equalising dividends, or for 
 .epainng „r maintaining the works connected with the business of the 
 Company, or any p.art thereof; and the Directors may invest the sum so 
 set apart as a Reser,.ed Fund upon such securities as they may select 
 
 75. The Directors may <leducl from the dividends payable ,„ any 
 Member all such sums of money as may be due from him to the Com! 
 pany on account of Calls or otherwise. 
 
 76. Notice of any dividend that may have been declared shall be 
 given to each Member in manner hereinafter mentioned; and all dividends 
 unchumed for three years, after having been declared, may be forfeited by 
 the Directors for the benefit of the Company. 
 
 ;;. No dividend shall bear interest as against the Company. 
 
 ACCOUNTS. 
 
 ;8. The Directors shall cause true accounts to be kept:- 
 Of the stock-in-trade of the Company ; 
 
 Of the sums of money received and expended by the Company, 
 and the matter in respect of which such receipt and 
 expenditure takes place; and 
 Of the credits and liabilities of the Company 
 The books of account shall be kept at the Registered Office of the 
 
 AUDIT. 
 
 167 
 
 Company, and, subject to any reasonable restrictions as to the time and 
 manner of inspecting the same that may be imposed by the Company in 
 General Meeting, shall be open to the inspection of the Members during 
 the hours of business. 
 
 79. Once at the least in every year the Directors shall lay before the 
 Company in General Meeting a statement of the income and expenditure 
 for the past year, made up to a date not more than three months before 
 such Meeting. 
 
 80. The statement so made shall show, arranged under the most 
 convenient heads, the amount of gross income, distinguishing the several 
 sources from which it has been derived, and the amount of gross expenditure, 
 distinguishing the expense of the establishment, salaries, and other like 
 matters ; every item of expenditure fairly chargeable against the year's 
 income shall be brought into account, so that a just balance of profit and 
 loss may be laid before the Meeting ; and in case where any item of 
 expenditure which may in fairness be distributed over several years has 
 been incuired in any one year, the whole amount of such item shall be 
 stated, with the addition of the reasons why only a portion of such 
 expenditure is charged against the income of the year. 
 
 81. A balance-sheet shall be made out in every year, and laid before 
 the Company in General Meeting, and such balance-sheet shall contain a 
 summary of the property and liabilities of the Company arranged under 
 the heads appearing in the form annexed to this Table, or as near thereto 
 as circumstances admit. 
 
 82. A printed copy of such balance-sheet shall, seven days previously 
 to such Meeting, be served on every Member in the manner in which 
 notices are hereinafter directed to be served. 
 
 AUDIT. 
 
 83. Once at the least in everv- year the accounts of the Company shall 
 be examined, and the correctness of the balance-sheet ascertained, by one 
 or more Auditor or Auditors. 
 
 84. The first Auditors shall be appointed by the Directors ; subsequent 
 Auditors shall be appointed by the Company in General Meeting. 
 
 85. If one Auditor only is appointed, all the provisions herein contained 
 relating to Auditors shall apply to him. 
 
 86. The Auditors may be Members of the Company ; but no person 
 is eligible as an Auditor who is interested otherwise than as a Member in 
 any transaction of the Company ; and no Director or other officer of the 
 Company is eligible during his continuance in office. 
 
 87. The election of Auditors shall be made by the Company at their 
 Ordinary Meeting in each year. 
 
M 
 
 1 68 
 
 THE DIRECTOR'S HANDBOOK. 
 
 8S The ,c™„„e,alion of ,l,c first A„,li,„,-s .hall h. Ihcl l,y ,hc 
 
 gC: m:';-,;.'' ^""^"'"^■■" ^"""''"^ ^'■^" ^ «-' '■>■ ••■= ^-i-^ '■> 
 
 8'». Any Audil„r shall be re-eligihie on his ,,uitti„f; office 
 
 "°- 'f ^'"y '-■■■'^"^l vacancy occurs in the oHiee of any Au.litor appointed 
 
 Me'Ltr';:'-' '"^^'^^^'o^^""" r"'".withca.. an Extraordinary Genera. 
 Aleettn}; for l he |>urpose of supplying the same 
 
 of Trade Z ""'""'/' ■'"'"'°" " ™"'^' '" """"" ='f<'^--''' ">•-• ''-"I 
 o Trade may on the application of „o, less than five Members of the 
 
 ^o oli :'";'""', '", ^""""^ "" ""^ ^■"-"' >-'■- -'J '- "- 'enumeration 
 to be pa,d to him by the Company for his services 
 
 and"-; ^half T'T ,'""" '' """'""' "'"' " ^"P'' "' "^ •^^'-'Cc-sheet, 
 ^outnels I elating thereto. 
 
 93^ Every Auditor shall have a list delivere.1 to hin, of all books kept 
 
 y he Company, and shall a. all reasonable times have access to ,L 
 
 books and accounts of the Co.npany : he mav, at the expense o e 
 
 ':rTc;:,r'Tr""'^ "^°'^" ""^™' .o^ssisthlmin'mvestitn; 
 ^d, accounts, an.I he ,„ay in relation to such accounts examine the 
 Directors or any other officer of the Company 
 
 94. The Au,litors shall make a report' to the Members upon the 
 
 :;;:r :■;„:" "■^■'°"'"; r '" -^-^ --' -""■■ "->■ ^^^^ 
 
 con i^. ,h TT"- "^'^"'^-heet is a full and fair balance-sheet 
 
 onta,n,„« the particulars re,p,ired by these regulations, and properly dra«n 
 "P - as to exhibit a true aud correct view of the state of he Conpa I" 
 ffatrs, and, ,n case they have called for explanations or information Zn 
 the Doectors, whether such explanations or informati.m have been Hv n 
 by he Dnecors, and whether they have been satisfact.uy . and such r Z 
 shaU ,,e read, together with the report of the Dircco.^ a. the OrdinT; 
 
 NOTICES. 
 95. A notice may 1«= sened by the Company upon any Member either 
 
 nrMe:, ' rf"'' •"™-'^'' "•' "-' - » '-i-^-' -- add.: ej 
 
 to such Member at his regi.stered i)laee of abode 
 
 to any Sha,e to whtch persons are jointly entitle.l, be given to whichever 
 of such persons .s named first in the Register of Mentbers ; and noti-eso 
 gtven shall be sufl.cicnt notice to all the holders of such Share 
 
 97. Any notice, if served by post, shall be .leemed to have been served 
 at the t,me when the letter containing the same would be delivered in the 
 ord.n.an. course of the post ; and in proving such ser^•ice it shall be sufficien 
 
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170 
 
 THE DIRECTOR'S HANDBOOK, 
 
 INDEX. 
 
 171 
 
 INDEX. 
 
 "A," Table 
 
 Account — 
 
 Books of 
 
 ' ■ * • • • ... 
 
 Accounts — 
 
 Directors' duties with respect to 
 
 Adjourned Meeting- 
 Notice of 
 
 Adjournment — 
 
 Statutory Meetinjj 
 
 Agenda Papers... 
 
 Allotment of Shares- 
 Duties j)rior to 
 Duties after 
 Remarks on 
 
 Allotment Letters 
 
 Allotment Money— 
 Keturn of 
 
 *'* ••• ••• 
 
 Amendments 
 
 Annual List of Members 
 Annual Meeting 
 
 Application for Shares and Allotment Book" 
 
 Application Money 
 
 Articles of Association- 
 Directors should settle the 
 Remarks on 
 
 Attendance Book 
 
 Audit .. .._ 
 
 Auditors- 
 Appointment of ... 
 Chartered Accountants should be 
 Directors' duties towards 
 Election of... 
 
 Names and Addresses nuist be on' Prospectus'" 
 Re-election of . 
 
 PAGK. 
 
 ••• ^';7 
 
 5.S, 166 
 <)2 ct seq. 
 ... 108 
 ... 88 
 
 I 
 
 ... 50 
 
 3«. 43 
 ... 47 
 
 ••• 45 
 ... 99 
 
 no 
 
 ... 89 
 
 42 
 
 40, 45 
 
 •7- 
 
 "- I 
 
 70 
 
 102, 167 
 ... 29 
 
 ... 94 
 
 102, 167 
 ... 25 
 102, 168 
 
 Balance Sheet — 
 
 Form prescribed by Table "A" 
 Presentation of 
 
 Banking Account — 
 
 New Company 
 Bankruptcy — 
 
 Director 
 
 Shareholder 
 
 Board Meetings- 
 Duties of Directors al 
 
 Quorum at 
 Books of Account 
 Borrowing 
 Calls- 
 Mortgage of 
 
 Payment of, in advance ... 
 
 Remarks on 
 Capital — 
 
 Increase of. . . 
 Certificate of Debenture .Stock — 
 
 Endorsement on ... 
 Certificate of Incorporation — 
 
 Directors to see, before issue of Prospectus 
 Certificate of Shares — 
 
 Examination by Directors before issue ... 
 
 Members entitled to 
 
 Remarks on 
 Chairman — 
 
 Duties of 
 
 Election of... 
 
 Chartered Accountants — 
 
 Auditors should be 
 
 Directors of new Companies should consult 
 
 Liquidators should be 
 
 Opening of Books by 
 Cheques — 
 
 Signing of 
 
 Commencement of Business — 
 
 Regulations with regard to 
 Commission for placing Shares 
 
 PAGE 
 
 ,. 169 
 ■ • 99 
 
 • 35 
 
 
 68, 
 
 164 
 
 
 • •• 
 
 158 
 
 
 
 66 
 
 
 ... 
 
 69 
 53 
 
 
 122 et 
 
 seq. 
 126 
 
 .81 
 
 , 129, 
 
 157 
 
 .75= 
 
 79^^ 
 
 seq. 
 
 160 
 
 55 
 
 ... 79 
 
 • •• 157 
 ... 52 
 
 97 et seq. 
 96 el seq, 
 
 ... 29 
 
 9 
 ... 146 
 
 ••• 53 
 
 50, 117 
 
 ... 57 
 31 
 
 I 
 
172 
 
 THE DIRECTOR'S HANDBOOK. 
 
 Committee — 
 
 Board 
 
 ••• ... 
 
 InvestijTatioii 
 
 C. *" "* ••• ... 
 
 ontracts — 
 
 Prospectus, to be mentioned in .. 
 Remarks on 
 Variation of 
 Debenture — 
 
 Definition of 
 
 •• • ... 
 
 Debentures- 
 Issue of 
 
 ''* ••• .,, 
 
 Directors- 
 Agenda Paper 
 Agents of Company 
 
 Attendance Book 
 
 Auditors can claim information from ""' 
 Bankruptcy of 
 Compensation, liable to pay 
 Consent to act required ... 
 Disqualification of 
 
 Duties and Powers of 
 Election of... 
 
 Liability Act, 1890 
 Managing ..... 
 Managing Partners 
 
 Officers of Company may be relied upon bv 
 
 Powers of . . . 
 
 "* ■•• ••• ... 
 Proceedings of 
 
 ' " * * ' • ... 
 
 Profit may not be made surreptitiously by 
 
 Promoters and 
 
 Prospectus of new Company and * 
 
 Qualification of 
 
 Re-election of 
 
 '*' ••• ••• 
 
 Remuneration of 
 
 '*' *•• ••• ••• 
 
 Rotation of 
 
 • • • • • • 
 
 Securities should be inspected by 
 Solicitors should be consulted by 
 Table '' A," Regulations of, respecting 
 Trustees 
 
 Unlimited liability of 
 Vacation of seat of 
 
 PAGE. 
 
 73. i^>5 
 100 
 
 26 
 
 '^'3 
 
 59 
 
 124 
 
 - - 1244'/ seq. 
 
 6;, 72 
 ... 118 
 
 ro 
 
 ... 94 
 
 08, 164 
 
 ... 119 
 
 9 
 
 ... 1 64 
 
 I. -. ^\ltt seq. 
 
 ■■• ... 84 
 
 ••• 154 
 
 57 
 113 
 
 ... 120 
 1 64 
 
 •■ ••• '65 
 "'"<. 120, r42 
 ... 8, 16 
 10 
 20 
 101 
 ... 131 
 164 
 ... 118 
 8 
 ... 163 
 "3- '15 t't seq. 
 ... 130 
 ... 68 
 
 INDEX. 
 
 173 
 
 Vote of, when interested in Contracts.., 
 
 AVinding-Up 
 
 Dividends — 
 
 Declaration of 
 
 " •*• ••• ••■ 
 
 Guarantee of, on Prospectus 
 
 Payment of 
 
 Election of Directors 
 
 Executors — 
 
 As holders of Shares 
 
 Extraordinary General Meetings 
 Eees — 
 
 Directors may sue for 
 
 Due at date of winding-up 
 
 Floating new Company 
 
 Forfeiture of Shares ... 
 Founders' Shares 
 
 ••• ••• ••■ 
 
 General Meetings — 
 
 Poll at 
 
 Proceedings at 
 
 Quorum 
 
 Table "A," Regulations of, respecting 
 Insurance 
 
 Investigation Committee 
 
 Letters of Allotment... 
 
 Lien on Shares of Directors 
 
 Liquidation 
 
 Managing Directors 
 
 Manied Woman — 
 
 Allotment of Shares to 
 
 Meetings — 
 
 Advertisement of 
 
 Annual 
 
 Extraordinary General 
 
 Ordinary- General 
 
 Statutory 
 
 Members — 
 
 Annual List of 
 
 Register of 
 
 Memorandum of Association 
 
 Minimum Subscripton 
 
 PAGE. 
 
 108 
 
 IsO 
 
 lOI, 
 
 127 
 
 • • • 
 
 21 
 
 • • • 
 
 166 
 
 • • • 
 
 84 
 
 
 77 
 
 • • • 
 
 103 
 
 
 ^2 
 
 • • ■ 
 
 152 
 
 • • • 
 
 31 
 
 138*?/ 
 
 seq. 
 
 ■ • • 
 
 21 
 
 107, 
 
 162 
 
 86, 
 
 161 
 
 96, 
 
 161 
 
 • • • 
 
 161 
 
 ■ • • 
 
 141 
 
 • • • 
 
 100 
 
 • • « 
 
 47 
 
 • ■ • 
 
 122 
 
 • ■ • 
 
 146 
 
 • • • 
 
 57 
 
 ... 49 
 
 -. 95 
 
 89, 161 
 
 89, 161 
 
 86 et seq. 
 
 86 
 
 ... 110 
 
 ••• 54 
 ... 7, 26 
 
 ... 23 
 
174 
 
 THE DIRECTOR'S HAxNDROOK. 
 
 • • • • ( 
 
 • • • • . ■ 
 
 • • ••• 
 
 Minors — 
 
 Allotment of Shares to 
 Minute Book — 
 
 Board Meetings 
 
 Shareholders' Meetings ... 
 
 Minutes- 
 Shareholders' MeetinfT 
 
 Misfeasance 
 
 * • • • • 
 
 Mortgage — 
 
 Calls, of 
 
 Power to 
 
 • • • ... 
 
 Mortgage Debentures 
 
 Mortgages — 
 
 Register of 
 Notices ... 
 Officials — 
 
 Appointment of 
 Polls . 
 
 Preference Shares 
 Preliminary Expenses .. 
 Premiums on issue of Debentures 
 Profits ... 
 
 Promoters 
 Prospectus — 
 
 Dating of ... 
 
 Directors, antl 
 
 Meetings to settle... 
 Mistakes in 
 
 • • • 
 
 Statements required to be printed on 
 Proxies ... 
 
 • ' • • • • 
 
 Proxy — 
 
 Form of ... 
 Qualification — 
 
 Directors' ... 
 
 Shares 
 
 ••• ... 
 
 • • • 
 
 ■ • ... 
 
 ■ • ... 
 
 • • • •> 
 
 • • • •• 
 
 • • ... 
 
 Quorum — 
 
 Annual Meeting 
 
 Board Meeting 
 Quotation on Stock Exchange 
 Reduction of Share Capital 
 Register of Members 
 
 PACK 
 
 ... 49 
 
 70, n 
 
 ••• ••• J I 
 
 Ill 
 
 ... 119 
 
 ... 126 
 
 122 
 
 ... 124 
 
 ••• 54 
 
 89 ft seq., 168 
 
 56 
 106, 107 
 
 ••• 135 
 24,31 
 
 ... 125 
 
 ... 128 
 
 ••• 4. 5> 8, 16 
 
 22 
 
 10 
 
 ro 
 
 37 
 
 23 
 
 95. io6 et seq. 
 
 ... 163 
 
 20 
 
 20 
 
 •• 95 
 
 3^, O9 
 
 • ... 63 
 
 ... 139 
 
 •• 54 
 
 INDEX. 
 
 175 
 
 Register of Mortgages 
 Registrar of Joint Stock Companies- 
 Documents to be filed with 
 
 Remuneration of Directors 
 
 Reserve Fund 
 
 Resolution- 
 Special 
 
 Revenue Account 
 Scrutineers 
 
 Seal of Company — 
 Custody of... 
 Use of 
 
 ' • • • - • ■ ■ • 
 
 Secretary 
 
 J • • • • • . ... ... 
 
 Securities — 
 
 Inspection of 
 
 Settling Day on Stock Exchange 
 
 Share Certificate 
 
 Share Warrants to Bearer 
 
 • • • • • ■ 
 
 Shareholders — 
 
 Bankruptcy of 
 
 Meetiops of 
 
 O '•' ••• ,,, 
 
 Shares — 
 
 Calls on 
 
 ••• 
 
 Conversion into Stock ... 
 
 Forfeiture of 
 
 *•• ••• •■• 
 
 Joint Owners of 
 
 Preference ... 
 
 Transfer of 
 
 Transmission of 
 Solicitors — 
 
 Desirability of consulting 
 Special Resolution — 
 
 Copy of, to be filed 
 
 Definition of 
 Special Settling Day 
 Statutory Meeting 
 Stock Exchange Regulations 
 Transfer Books — 
 
 Closinif of.. 
 Transfer of Shares 
 
 I'AGE. 
 
 54 
 
 20, 22, 34, 50 51, 55, 58 
 
 131 
 
 166 
 
 104 
 
 ••• ••• ••• 93 
 
 108 
 
 ... ... 84 
 
 50 
 
 ... ... ... wO 
 
 ••• ... ... 118 
 
 61 
 
 52 
 
 136 
 
 ... ... ,,, 158 
 
 86 c^ seq. 
 
 ■•■ 75» 79^^ seq., 157 
 
 159 
 
 138 et seq. 
 
 157 
 
 135 
 
 73 et seq., 158 
 
 158 
 
 • • • ... ... o, 8 
 
 ••• ••• 
 
 • ■ 
 
 . 109 
 
 • • 
 
 . 104 
 
 .. 
 
 60 
 
 .. 
 
 • 87 
 
 Ci 
 
 et seq. 
 
 . • 
 
 . 158 
 
 73 
 
 et seq. 
 
176 
 
 THE director's HANDBOOK. 
 
 Transfer — 
 
 Form of 
 
 Trusts— 
 
 Notice of 
 
 Vendors — 
 
 Directors' position with regard to 
 
 Variation of Agreements with ... 
 
 Votes 
 
 Winding-up 
 
 PAGE. 
 158 
 
 34 
 
 59 
 1O2 
 
 143 
 
 DEC 10 jg3o 
 
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