COMPANY shares — which, originated with private companies — are shares which usually take the whole or half the profits after payment of a dividend of 7 or 10 per cent to the ordinary shareholders. They are much less in favour than they used to be. An agreement to take shares is like any other agreement. It is constituted by offer, acceptance, and communication of the acceptance to the offerer. The offer in the case of shares is usually in the form of an application in writing to the company, made in response to a prospectus, requesting the company to allot the applicant a certain number of shares in the undertaking on the terms of the prospectus, and agreeing to accept the shares, or any smaller number, which may be allotted to the applicant. Under the Companies Act, 1900, an allottee is entitled to rescind his contract unless the minimum subscription has beeil obtained. When an application is accepted the shares are allotted, and a letter of allotment is posted to the applicant. Allotment is the usual, but not the only, evidence of acceptance. As soon as the letter of allotment is posted the contract is complete, even though the letter never reaches the applicant. An application for shares can be withdrawn at any time before acceptance. As soon as the contract is complete, it is the duty of the company to enter the shareholder’s name in the register of members, and to issue to him a certificate under the seal of the company, evidencing his title to the shares. The register of members plays an important part in the scheme of the company system, under the Companies Act, 1862. The principle of limited liability Re embers°f ^av^no been once adopted by the Legislature, justice required not only that such limitation of liability should be brought home by every possible means to persons dealing with the company, but also that such persons should know as far as possible what was the limited capital—the sole fund available to satisfy their claims, what amount had been called up, what remained uncalled, who were the persons to pay, and in what amounts. These data might materially assist a person dealing with the company in determining whether he would give it credit or not; in any case they are matters which the public had a right to know. The Legislature, recognizing this, has exacted as a condition of the privilege of trading with limited liability that the company shall keep a register with those particulars in it, which shall be accessible to the public at all reasonable times. In order that this register may be accurate, and correspond with the true liability of membership for the time being, the Court is empowered under the Companies Act, 1862, to rectify it in a summary way, on application by motion, by ordering the name of a person to be entered or removed. This power can be exercised by the Court, whether the dispute as to membership is one between the company and an alleged member, or between one alleged member and another, but the machinery of the section is not meant to be used to try claims to rescind agreements to take shares. The proper proceeding in such cases is by action. The same policy of guarding against an abuse of limited liability is evinced in the provision of the Act that shares in the case of a limited company forUhlres slia11 be Paid for in ful1- Tiie Legislature has allowed such companies to trade with limited liability, but the price of the privilege is that the limited capital to which alone the creditors can look shall at least be a reality. It is therefore ultra vires for a limited company to issue its shares at a discount; but there was nothing in the Companies Act, 1862, which required that the shares of a limited company, though they must be paid up in full, must be paid up in cash. They might be paid “ in meal or in malt,” and
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it accordingly became common for shares to be allotted in payment for furniture, plate, advertisements, or services. The result was that the consideration was often illusory, shares being issued to be paid for in some commodity which had no certain criterion of value. To remedy this evil the Legislature enacted in the Companies Act, 1867 (§ 25), that every share in any company should be held subject to the payment of the whole amount thereof in cash, unless otherwise determined by a contract in writingfiled with the Registrar of Joint Stock Companies at or before the issue of the shares. This section not infrequently caused hardship where shares had been honestly paid for in the equivalent of cash, but owing to inadvertence no contract had been filed; and it has now been repealed by the Companies Act, 1900, and the old law restored. In reverting to the earlier law, and allowing shares to be paid for in any adequate consideration, the Legislature has, however, exacted a safeguard. It has required the company to file with the Registrar of Joint Stock Companies a return stating, in the case of shares allotted in whole or in part for a consideration other than cash, the number of the shares so allotted, and the nature of the consideration—property, services, &c.—for which they have been allotted.
Though every share carries with it the liability to pay up the full amount in cash, the liability is only to pay when and if the directors call for it to be paid up. A call must fix the time and place for payment, otherwise it is bad. When a person takes shares from a company on the faith of a prospectus containing any false or fraudulent representations of fact material to the contract, he is entitled to rescind the contract. The company cannot keep a contract ob- me/jf tained by the misrepresentation or fraud of its agents. This is an elementary principle of law. The misrepresentation, for purposes of rescission, need not be fraudulent; it is sufficient that it is false in fact: fraud or recklessness of assertion will give the shareholder a further remedy by action of deceit, or under the Directors’ Liability Act, 1890; but, to entitle him to rescind, the shareholder must show that he took the shares on the faith or partly on the faith of the false representation : if not, it was innocuous. A shareholder claiming to rescind must do so promptly. It is too late to commence proceedings after a winding-up has begun. The shares or other interest of any member in a company are personal estate and may be transferred in the manner provided by the regulations Traasfer of the company. As Lord Blackburn said, it was one of the chief objects with which joint stock companies were established, that the shares should be capable of being easily transferred; but though every shareholder has a primd facie right to transfer his shares, this right is subject to the regulations of the company, and the company may and often does by its regulations require that a transfer shall receive the approval of the board of directors before being registered, — the object being to secure the company against having an insolvent or undesirable shareholder (the nominee perhaps of a rival company) substituted for a solvent and acceptable one. This power of the directors to refuse a transfer must not be exercised arbitrarily or capriciously. If it were, it would amount to a confiscation of the shares. Directors, for instance, cannot veto a transfer because they disapprove of the purpose for which it is being made (e.g., to multiply votes), if there is no objection to the transferee. A company can only pay dividends out of profits defined as the “ earnings of a concern after deducting
