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Section Companies Acts) and the number of shares into 27. which the capital is divided.

Section 27.

Registration of

ited by guarantee before this Act.

(2.) Every provision in any memorandum or articles of association or resolution of a company (whether limited by guarantee or otherwise) purporting to divide the undertaking of the company into shares or interests shall for the purposes of this section be treated as a provision for a capital divided into shares, notwithstanding that the nominal amount or number of the shares or interests is not specified thereby.

(3.) In the case of a company limited by guarantee and not having a capital divided into shares, every provision in the memorandum or articles of association or in any resolution of the company purporting to give any person a right to participate in the divisible profits of the company otherwise than as a member shall be void.

(4.) This section shall apply only to companies registered after the commencement of this Act.

Before the commencement of this Act a company limited by companies lim- guarantee could (by virtue of sections 9 and 14 of the Companies Act 1862) be registered with a capital, which was or which was not divided into shares. If its capital was divided into shares, its articles (not, it will be noted, its memorandum) of association were required to state the amount of capital, with which the company proposed to be registered. If, on the other hand, its capital was not divided into shares, its articles were required to state the number of members, with which the company proposed to be registered, for the purpose of determining the fees payable on registration.

Object of section 27.

A practice has sprung up of late to register a company as a company limited by guarantee without any capital and subsequently by resolution to alter its articles of association, so as to divide its undertaking into a specified number of undivided "parts" or "interests," which are practically shares. This

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27.

device enabled such a company to avoid payment of capital duty, Section the disclosure of the names of the holders of such "parts "interests" and generally to evade the obligations, which are imposed by the Companies Act 1862 on companies limited by shares. The object of section 27 of the present Act is to put an end to the above-mentioned practice.

Effects of

The effect of section 27 (1) of the Companies Act 1900 is to Section 27 (1). require certain matters to be stated by the memorandum of associa- section 27 (1). tion in certain events, but the provisions of sections 9 and 14 of the Companies Act 1862 must still be observed.

far increase or the accordance with

reduction in

the Companies

the Acts".

The meaning of the words "subject to increase or reduction in Meaning of "subject to accordance with the Companies Act" in section 27 (1) are from clear. The Companies Act 1862 (section 12) and Companies Act 1867 (section 9) respectively provide for increase and reduction of the capital of a company limited by shares, but neither these sections nor any other section of the Companies Acts provide for the increase or reduction of the capital of companies limited by guarantee. Before the present Act the capital of companies limited by guarantee was, as has been already stated, required by section 14 of the Companies Act 1862 to be fixed by their articles of association and, as these could be altered by a special resolution (section 50), no special provisions for the increase or reduction of the capital of such a company were necessary. But, as the amount of the capital of such a company, if divided into shares, is now required by section 27 (1) to be specified in its memorandum of association, it is doubtful whether its capital can be increased or reduced.

FALSE STATEMENTS.

Penalty for

28. If any person in any return, report, certificate, Section 28. balance sheet, or other document, required by or for false statement the purposes of this Act, wilfully makes a statement false in any material particular, knowing it to be false, he shall be guilty of a misdemeanor, and shall be liable on conviction on indictment to imprisonment for a term not exceeding two years, with or without

28.

Section hard labour, and on summary conviction to imprisonment for a term not exceeding four months, with or without hard labour, and in either case to a fine in lieu of or in addition to such imprisonment as aforesaid: Provided that the fine imposed on summary conviction shall not exceed one hundred pounds.

Section 28.

Criminal law

relating to the liability of directors for

Section 28 would appear to materially strengthen the criminal law against directors, who issue documents containing fraudulent statements. Prior to the passing of the present Act such persons misrepresenta- only came within the reach of the criminal law if they came within section 84 of the Larceny Act 1861 (24 & 25 Vic. cap. 96).

tions before

this Act.

24 & 25 Vic. cap. 96 sec. 84.

Documents

"required by or for the purposes of this Act".

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Section 84 runs as follows:

"Whosoever, being a director, manager, or public officer of any "body corporate or public company, shall make, circulate, or "publish, or concur in making, circulating, or publishing, any "written statement or account which he shall know to be false in "any material particular, with intent to deceive or defraud any "member, shareholder, or creditor of such body corporate or public company, or with intent to induce any person to become a share"holder or partner therein, or to intrust or advance any property "to such body corporate or public company, or to enter into any "security for the benefit thereof, shall be guilty of a misdemeanor, "and being convicted thereof shall be liable, at the discretion of the "Court, to any of the punishments which the Court may award as "herein before last mentioned."

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A prospectus is not a "document required by or for the purposes of this Act" within the meaning of section 28 of the present Act, and this last mentioned section would therefore not appear to be applicable to false statements in a prospectus.

The documents "required by or for the purposes of this Act"

are:

(1) the statutory declaration that all requisitions of the Companies Acts in respect of registration and of matters precedent and incidental thereto have been complied with (sec. 1 (2)),

(2) the statutory declaration that the conditions specified in section 6 (1) prior to a company commencing business have been complied with (sec. 6 (1 (c)),

(3) The return as to allotments (sec. 7 (1)),

(4) The copy of prospectus signed by the directors and filed with the registrar (sec. 9 (2)),

Section 28.

(5) the directors' report sent to the shareholders before the first statutory meeting (sec. 12 (2)),

(6) the company's register of mortgages and charges (sec. 14

(7)),

(7) the annual summary to be sent to the registrar (sec. 19

(1)),

(8) the auditor's certificate at the foot of the company's balance sheet (sec. 23), and

(9) the auditor's report to the shareholders on the company's accounts and balance sheets (sec. 23).

CONVERSION OF STOCKS INTO SHARES.

Conversion of

shares.

so 25 & 26 Vic. cap

89.

29. Every company limited by shares, and which section 29. has in pursuance of the Companies Act, 1862, con- stock into verted any portion of its shares into stock, may far modify the conditions in its memorandum of association, if authorised to do so by its articles as originally framed or as altered by special resolution in manner provided in the Companies Act, 1862, as to reconvert such stock into paid-up shares of any denomination.

Distinction between stock and shares.

Section 12 of tne Companies Act 1862 provides (inter alia) that section 29. any company limited by shares may convert its paid-up shares into stock. "Stock" and "shares" do not differ materially, the main distinction between stock and shares being that stock can be bought or sold in fragments, whereas a company does not recognise a transfer of a fraction of a share, which has been issued. "The use of the term stock" says Cairns L. C. (d) "appears "to me merely to denote, that the company have recognised "the fact of the complete payment of the shares and that the "time has come, when those shares may be assigned in fragments,

(d) Morrice v. Aylmer 10 Ch. 148, 154.

Section 29.

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which for obvious reasons could not be permitted before." Substantially the holder of stock issued in lieu of shares has the same rights as he had by virtue of his shares.

Section 29 of the present Act empowers a company to reverse the process, viz. to reconvert stock into shares.

SUPPLEMENTAL.

Section 30.
Definitions.

30. In this Act, unless the context otherwise requires,

The expression

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Companies Acts" means the Companies Act, 1862, and the Acts amending the same;

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The expression company means a company registered under the Companies Acts;

The expression "director" includes any person occupying the position of director, by whatever name called;

The expression "registered" means registered under the Companies Acts;

The expression "prescribed" means prescribed by the Board of Trade;

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;

The expression "debenture " includes debenture

stock;

Other expressions have the same meanings as in the Companies Act, 1862.

The expression "director" as used in this Act is said to "include any person occupying the position of director," that is

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