Company, although it may be applied to every kind of partnership, is generally used in connection with the law of joint-stock companies. These differ from the ordinary Partnership (q.v.) chiefly in the fact of the shares of the capital stock being transferable, generally apart from the consent of the remaining partners, although power is often reserved to object to a transferee; and also in the fact that full powers of management are devolved on directors and other officials to the exclusion, more or less complete, of the shareholders. An unincorporated joint-stock company at common law, such for instance as the famous Carron Iron Company, is really a partnership in many respects, its partners being liable without limit for the debts of the company. Under the Letters Patent Act, 1837, however, it may obtain several privileges of incorporation.
It is not lawful for more than ten persons to carry on a joint-stock banking company at common law, nor for more than twenty persons to carry on any other kind of joint-stock company at common law: all such concerns must register under the Companies Acts. Unincorporated companies may be made bankrupt and wound up in the ordinary way by sequestration, but it is also competent by a liquidation petition to apply to them the usual machinery for recovering the contributions due by members of registered companies, and adjusting the rights and liabilities of contributors inter se. Of course, the constitution of such common-law companies varies indefinitely with the provisions of the agreement under which they act. There is also in existence a large class of companies created by royal charter, which have a legal corporate existence apart from their individual members, and a perpetual succession and a common seal. In such cases the charter defines, more or less clearly, the objects and the powers of the corporation and the mode of management, but the majority of members have within these limits considerable powers of framing bylaws. Where the charter is silent on the subject there is no direct liability of the members to the public at all, and their liability is limited to the unpaid balance of their shares. But the crown was empowered by statute to express in such charters that the liability of members is unlimited; and such until 1882 was the position of most of the large Scottish banks. The royal power to create corporations by charter was in certain cases delegated to burghs in Scotland, who exercised it by granting seals of cause. Of course, the validity of the provisions even of a royal charter may be questioned in a court of law.
Still another class of companies consists of those incorporated by act of parliament. Here no objection can be raised to the act of an all-powerful legislature. Such statutes, besides conferring the ordinary privileges of incorporation, generally give further parliamentary powers required for the particular undertaking—e.g. a right to levy tolls. All such particular statutes, which can be obtained only on giving the guarantees required by the practice of parliament in private bills, are all now subject to the general provisions of the Companies Clauses Acts of 1845, 1863, and 1869. These general acts deal not only with such matters as the issue of new capital, the creation of debenture stock, the change of name, but also with the general administration of the company, the powers of directors, the transference and forfeiture of shares, &c. Such statutory companies may also be placed in liquidation under the Companies Act of 1862.
The great mass of joint-stock companies, however, in this country owe their incorporation not to royal charter or statute, but to registration under the Limited Liability Acts, which began in 1855, but which are now all merged in the great statute of 1862, supplemented on various occasions down to 1900. As a general rule the provisions of the Act of 1862 apply, without fresh registration, to the companies formed and registered prior to that date. The new procedure is that any seven people, by subscribing a memorandum of association which states the name, place of business, and general objects, and delivering it to the registrar (there is a separate registrar for England, Scotland, and Ireland), may obtain a certificate of incorporation with or without limited liability. The great majority of these companies have been limited by shares—viz. the shareholders are liable only for the amount uncalled upon their shares. But cases of unlimited liability are not uncommon, and both banks and insurance companies have frequently availed themselves of the facilities afforded by registration; in the case of banks, the liability remaining unlimited as regards the note issue, while the liability of shareholders for other obligations of the bank is restricted in the usual way. An insurance company requires to make a deposit of £20,000 before registration. It is sufficient if each of the seven subscribers of the memorandum of association subscribes for oneshare. Companies not formed for commercial profit may be registered by license of the Board of Trade. After the memorandum come the articles of association, which in most cases are, slightly modified, one of the sets of model regulations known as Schedule A and B of the statute. The general effect of registration is to make the applicants and other members a corporate body with perpetual succession, a common seal, power to hold lands without intervention of trustees, and a liability of members for the time to pay calls on the shares, and a liability of all members, past and present, to contribute the amount of the uncalled capital in the event of a liquidation, excluding such members as have been a year out of the concern before the winding up commences. Past members only contribute if present members cannot make up the deficiency. Hence the lists A and B of contributors so unpleasantly known in the mercantile world. Contributors cannot 'set off' or deduct from their liability debts due to them by the company. But the constitution, so defined by the memorandum and articles of association, is elastic. By special resolution of the shareholders—i.e. a resolution passed by three-fourths and afterwards confirmed, which is also registered—capital may be increased, the amount of shares altered, the liability of directors made unlimited. With the consent of the Board of Trade, the company may even change its name.
It is common to reserve to the directors power to object to a transferee of shares, but where this is not done, the directors are powerless to prevent the common practice of transferring shares to persons of no means just before a liquidation arrives, at least where such transfer is out and out. After liquidation no change can be made on the register of shareholders, which decides the liabilities of parties. Mistaken entries, however, may be rectified by petition to the court, even after liquidation, but it is then too late to raise an action to set aside a contract to take shares on the ground of fraud or misrepresentation. The liquidation of the City of Glasgow Bank (1878-82) called attention to the fact that in Scotland, differing in this respect from England, notice of trusts was taken in the registers of companies, but this did not prevent the trustees and executors who were so entered from being held personally liable for the full amount of the calls made. The necessity of keeping a register of mortgages is a useful provision, and every shareholder is entitled to obtain copies of the annual accounts and of any special resolutions passed. General meetings must be held at least once a year. The Board of Trade have power to order a systematic inspection of the books and accounts of a company, if they are asked to do so by one-fifth of the shareholders. The strongest security reserved to the management of a company for payment of calls is the stringent power of forfeiture which is often exercised with unfairness and severity.
Upon the whole the statute of 1862 has been beneficial in the development of trade; but it has also produced a great mass of dishonest speculation, with which the common-law doctrines of fraud and misrepresentation have not been adequate to deal. The Companies Act, 1900, makes stringent regulations regarding company promotion, especially in the position of directors of new companies and their qualifications. For further information, see DIRECTORS AND LIQUIDATION. Also see CORPORATION, GUILD, LIVERY, and RAILWAYS.