London Legal Letter.
261
LONDON LEGAL LETTER. London, May 6, 1896. THOSE who are interested in the efforts which are being made to bring about uniformity of legislation in the various States of the United States would do well to keep their attention fixed on the progress of the law in this country with respect to corporations or, as they are com monly spoken of here, " public companies." It is impos sible to make an Englishman understand why a corporation, organized to do business in the State of New York, should obtain its charter from the State of New Jersey or the State of West Virginia; and there are other anomalies that appear equally incomprehensible. While these peculiarities do not exist here, there have been possible certain practices under which the shareholders' money has found its way into designing men's pockets, and nothing in the way of advan tage has accrued in return to either the shareholders them selves or the creditors of the company. When it is known that the total capital of the companies organized in Great Britain last year represents $1,575,000,000, or more than the united investments of Germany and France in corpora tion shares combined, it will be readily understood how jealous the legislature should be to protect the interests of the investors, and that legislation affecting such an enor mous sum demands great care. A bill is now pending in Parliament to amend the existing laws, but, while the neces sity of some reform is recognized, a certain difficulty is experienced from the fear of making it too drastic; but the facilities for the formation of companies which now bring so much business to England may be curtailed, or their ad ministration may be embarrassed, or the best class of men be debarred from becoming directors. So far as principles are concerned, the laws as to the formation and regulation of public companies in England and the United States are very much alike; but there is one feature peculiar to the English act that it would be well to imitate in America, and that is " the prospectus." Here almost every company which invites the public to subscribe to its shares issues a prospectus, and the law re quires that in this prospectus shall be set out the nominal capital of the company; the number and description of the shares; the terms of issue; the names of the directors, bankers, solicitors, brokers, auditors and the secretary; the objects and prospects of the company; what contracts have been entered into, and where copies of the memorandum and articles of association and of the contracts can be seen. It is absolutely necessary that this prospectus should dis close every material fact affecting the company, and if it does not, or if it contains any misrepresentation or any de ceptive or misleading statement, or one which is so ambig uous that it is not true in every sense 111 which it might be understood, the subscriber who has subscribed for his shares upon the faith of it may repudiate the allotment which has been made to him, and may, also, sue for dam ages or compensation those who issued the prospectus and
others who are by statute responsible. As even under this regulation many frauds are committed, the bill now pend ing provides that the prospectus must disclose everything which could reasonably influence the mind of an investor of average prudence, especially the real facts as to the sale of the property and all amounts paid for the promotion or the subscription of shares. As there is no more frequent cause of disaster to a new corporation than allotment of shares on insufficient capital and an attempt to embark upon the business of the com pany with a practically empty treasury, which entails the necessity of mortgaging the company's franchises or the issuing of debentures, the amendment to the Companies Acts provides that the memorandum or articles of associa tion shall state the minimum subscription upon which the directors shall proceed to allotment; and it is furthor pro vided that at least seven days before the first statutory meeting the directors shall forward to every shareholder or subscriber for shares a statement of the position and pros pects of the company, and all other information to their knowledge, including the total number of shares which had been allotted and what has been received for them. This is to enable the shareholders, if they think fit to do so, to review their position and prospects. In order to prevent the evil of debt in the way of mortgages and debentures, it is proposed that within seven days of their creation all mortgages and charges of any kind affecting the assets of the company shall be registered with the official registrar of public companies; and this wise provision is supplemented by another requiring an annual audit, and that a copy of the balance sheet shall be sent to the registrar within thirty days after the meeting at which it is presented. If this bill becomes a law, and there is every likelihood that it will, it will certainly minimize the risks which in vestors are now exposed to, as it will be practically impos sible for a promoter of a company to delude the public by false statements, while the very fact that a share is allotted and issued to a subscriber will be a proof to him that the rest of the shares up to the minimum required have been similar ly allotted and issued to others. Having taken an interest in the company with this comfortable assurance, he may have the further satisfaction of knowing that the directors of the company cannot incur a permanent debt without his becoming at once aware of it, and that the annual balance sheet is always open to his inspection. These provisions will also form an unusual security to creditors of the company. The General Council of the Bar has recently held its thir teenth annual meeting, and while it did not attract a large at tendance of the up[>er branch of the profession, it was never theless a gathering of some imi>ortance. It is a voluntary association whose object it is to take care of the interests of barristers as the Incorporated I.aw Society looks after those of solicitors. The General Council of the Bar is this year, for the first time, in receipt of an allowance of ^600 a year from the
