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safeguards have not proved quite as efficient as was expected by the legislature, but the net result has been a clear gain. There are good grounds for saying that dishonest or even reckless company promotion is no longer known in Germany. No doubt commercial and industrious enterprise in that country has lately passed through a period of prosperity, which cannot be expected to continue unchecked; but times of prosperity, as a general rule, facilitate the task of unscrupulous financiers, and the absence of unsound company promotion in such times may be accepted as satisfactory proof of the efficiency of the law.

The statute on stock-exchange and produce-exchange transactions passed by the German Reichstag in 1896, though laying down certain restrictions as to dealings in shares on the stock exchanges, does not touch the law on the formation and management of companies. The imperial commission on whose recommendation that statute was prepared 1 accepted the testimony of experts on all sorts of matters, however remotely connected with the subject of their inquiry, and would no doubt have listened to any complaints that might have been made as to the efficiency of the law of 1884. The fact that no such criticism came forward is good negative evidence of the non-existence of any substantial grounds of dissatisfaction.

Another opportunity for complaints against the efficiency of the Act of 1884 was given by the inquiries of the committee appointed to assist in the revision of the German mercantile code, but in this case also the only points referred to were matters of detail not affecting the main principles of the law. The amendments which were introduced into the new mercantile code in connection with company law are not without importance, but they are all in the direction of strengthening the principles laid down in 1884.

Company law can he looked upon from three different points of view: the shareholders' point of view, the creditors' point of view, and the point of view of the general public. If the shareholders' point of view was the only one to be considered, much might be said in favour of abstention from legislative interference. There is no reason why persons who invest or speculate in the shares of companies incorporated in their own countries should enjoy better protection than those who invest or speculate in the shares of foreign companies, or in other stock exchange

1 The reports and minutes of the sittings of this commission have been pub. lished and contain much interesting information.

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securities. But the two other points of view are of much greater importance; all trading with unlimited liability offers certain safeguards to the creditors and to the general public, which are withdrawn in the case of trading with limited liability, and ought in that case to be replaced by corresponding safeguards of another kind. I mention the general public as distinguished from the creditors, because the dangers to which the general public is exposed by limited liability trading are of a kind differing entirely from the risks incurred by creditors. Bad company law, as will be explained in the further course of this article, is a direct inducement to the parties concerned to trade in an unsound manner, and the effects of unsound trade, like those of bad sanitation, go very far beyond the area from which it proceeds. There is one principle which should never be disregarded, whenever the privilege of limited liability is conferred by law; the liability of a fund having a fixed and ascertainable value should be substitued for the unlimited liability of individuals. The value of this fund should on the formation of the company correspond with the amount of its nominal capital, and precautions should be taken to prevent, as much as possible, the diminution of this fund during the subsequent stages of the company's existence. Company law should, therefore, find means to assure (a) that the value of the property which represents the capital of a company on its formation shall correspond with the amount of the nominal paid up capital of the company; (b) that property of the same value should continue to represent the paid-up capital of the company as long as it is not increased, and that on any increase of the paid-up capital the property representing the increase should be of a value at least equal to the nominal amount of the increase. I shall deal with each set of rules separately.

A.--Provisions as to Valuation of Assets on formation of


The amount of the nominal capital with which a company is started in England is purely arbitrary, and need not stand in any relation to the value of the assets by which it is represented. A trader who converts his business into a company and keeps the shares himself has every inducement to fix the capital at a high figure, and as he is buyer and seller in one person, the price at which the business is sold-apart from the question of stamp duties—is absolutely immaterial.

If the shares are to be taken by the public the character which Company Promotion is apt to assume is shown by the following illustration. A trader wants to sell his business, which is worth £10,000, and approaches a financial agent conversant with such matters. The agent enters into a conditional contract whereby he agrees to buy the business in the event of his being able to form a company with a paid-up capital of £50,000. The price promised under the circumstances would probably be £10,000 in cash and the same amount in shares. The agent then tries to find some financiers willing to form a syndicate for the purpose ; if these are found they are substituted as purchasers for the financial agent, who would probably be satisfied with £5,000 for his profit on the transaction. These £5,000 would probably be divided by him with some friends who helped to collect the members of the syndicate. The syndicate would subsequently sell the business to the newly-formed Company for the £50,000, and if they succeed in placing the whole of the shares they will, under the above-mentioned circumstances, obtain a gross profit of £25,000, but out of this sum some other intermediaries must be paid, legal expenses and stamp duties must be disbursed, and, to judge from recent revelations, the financial press must receive encouragement. The final result of all this is that the company acquires the property at a price representing five times its real value, the difference being divided by a number of people who have all in their way helped to float the company. It is well known that this rate of profit is by no means exceptional and is frequently exceeded.

Another circumstance has also to be taken into consideration in places in which British Company Law is applied.

Assuming in the case just mentioned, that the public do not take all the shares, the syndicate may consider it worth while to go to allotment on the amount subscribed, and to trust to chance as to placing the rest of the shares at a subsequent period. In the instance given above this would have no effect on the working of the company, as the company would not get any of the proceeds of the shares in any event, but in some cases the purchase price does not absorb the whole of the nominal capital, some portion of the latter being reserved as a working capital ; in such a case the company has of course to suffer by the nonsuccess of the issue.

Thus it will be seen that the principle of establishing a definite fund available for the payment of the company's debts, the value of which can easily be ascertained, is in this country departed from in two ways: (1) by the absence of provisions ensuring that the property in which the capital is invested in the first instance is taken over at a price representing its true value; (2) by the absence of provisions preventing a company from starting business before the whole of its capital has been subscribed. As regards the second point, the bill which is now before Parliament provides a partial remedy by requiring a statement as to the minimum amount of subscriptions on which the company will proceed to allotment, but this mode of dealing with the matter, though affording a certain amount of protection to subscribers for shares, does not in any way benefit the interests of the creditors or of the general public.

In Germany the genuine nature of the valuation put on the original assets is secured by elaborate provisions which I shall deal with at length, and the starting of business with an insufficiently subscribed capital is prevented by the rules laid down in sections 195 and 200 of the new mercantile code, according to which the corporate existence of a company cannot possibly begin before its whole capital has been subscribed for, and before at least 25 per cent. of the amount payable in cash is in the actual possession of the managers. There are two modes of formation permissible in Germany; (1) the simultaneous method, according to which the promoters take up the whole capital and offer it to the public after the formation of the company; (2) the successive method, which enables the promoters to offer the shares before the registration of the company; but in either case the subscription of the whole capital must be complete before the company can begin business.

These requirements as to the subscription of the capital would not be of much importance, if the first point to which I have called attention, namely, the adequacy of the value of the property in which the capital is invested, had not been properly attended to. This was done by provisions requiring the following things : (a) that certain matters relating to the history of the formation of the company should be inserted into the articles of the Company; (b) that the promoters should make a report on the promotion transactions, for the accuracy and completeness of which they are civilly and criminally liable; (c) by provisions requiring the members of both boards of the company to examine into the circumstances of the formation of the company; (d) by provisions requiring an examination by independent auditors in certain cases.

(a) The articles have to state (among other things) :

(1) The nature of any consideration not being cash against which any shares are issued.

(2) The names of any persons from whom the company on its formation is to acquire any property, and the prices at which any such property is to be acquired.

(3) The total amount of any payments to be made by the company for services rendered in connection with the promotion of the company.

(6) In all cases in which any shares are issued for any consideration not being cash, or in which any property is to be acquired on the formation of the company, the promoters have to prepare and sign a written report, in which they have to set out the circumstances from which it appears that the property to be taken over in lieu of cash or to be acquired by the company, is worth the amount for which it is to be taken. In this report all transactions which led up to the ultimate sale of the property in question to the company, must be mentioned, together with all prices paid within the preceding two years for the purchase or construction of any part of such property; in the case of a company taking over a whole undertaking the results of the trading of the two preceding years must also be set forth. The term promoter according to c. 187 includes all signatories of the articles of association, and also all persons whose shares are not paid up in cash, and section 202 provides that all such promoters are answerable to the company in damages in respect of any inaccuracy or incompleteness in the above-mentioned report; and also that they have to refund to the company any pecuniary benefit conferred by them to any person in connection with the purchase of the property of which no mention is made in the report. Promoters are released from these liabilities if they can prove that the inaccuracy or incompleteness of the report was neither known to them nor could have been known to them if they had applied the diligence of a prudent trader. Third parties who have received any benefit not disclosed in the report are also liable in damages, if the concealment was (or under the circumstances of the case ought to have been known to them. Any promoter who knowingly makes any false statement in the report in question is also punishable with imprisonment and a maximum fine of 20,000 marks (section 313).

(c) Every German company has a supervising board and a managing board; in the case of a “simultaneous" formation the first boards are appointed when the Articles of Association are signed ; in the rare case of a “successive" formation, the

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