PREVIEW COMPANY LAW I
TABLE OF CONTENTS COMPANY LAW AND PARTNERSHIPS I
:: History being a record of past events shapes the future-Prof Abugu.
:: When did the “company-like” form rear its head and how did it evolve over the years? Some scholars say the history of Company Law is traceable to the practice of Italian Merchants others say it is traceable to 13th Century England. Our discussion shall adopt the latter position.
13th -17th Century.
The following endeavours were accorded “corporate” status during this period.
1 The Church of England, Monasteries and other Ecclesiastical Bodies: Procured charters from the crown for the sole propagation of their objects. These were the earliest forms.
- The Borough System: A charter could be obtained from the crown to recognize a particular community/municipality as a corporation. This practice was given legal backing by the Municipal Corporation Act of 1835.
- The Guilds: People involved in the same business would come under the auspices/umbrella of the guild. Members contribute/pool money and make bulk purchases and share according to contribution/interest. This united form protected their interests and gave them better bargaining power. Charters were procured in this regard.
- Partnerships: not exactly like the ones we have now. This type took two forms viz:
- The Commenda: a temporary association of two or more people where “A” (called the Commendator) lends money to “B” (his partner called the Commendatarus) to employ in trade and take a percentage of the profit (usually 25 percent) The commendator bears the capital and risk while the commendetaurus deals with the running and administration.
- The Societas: Here, members conglomerate under the auspices of the societas but each traded with his own stock and on his own account. Charters were obtained to acquire monopoly of trade for members and to give them (their members) power over the territory in which they traded.
:: By this time, international trading began to gain prominence. However, due to the huge risk and capital involved, a single individual found it herculean to undertake. Therefore, “Joint Stock Companies” were formed (and obtained charter) to pursue international and social undertakings. The Muscovy Company was the first joint stock, followed by the East Indian Company.
A Joint Stock essentially involves a large number of people pooling money together in common stock. The common stock is divided into units of (readily transferable) shares based on the contribution/interest of each member. The profit is shared to each member based on his interest.
17th – 18th Century:
The Bank of England was formed in 1694. This bank lent money to the State at an interest.
The South Sea Bubble
A group of individuals were in the habit of lending money to the State at an interest. A royal charter was granted to incorporate the group. The South Sea Company emerged on this premise. The company was granted a monopoly to engage in trade with South America. This Company bought over major national debts thereby unburdening the State and acquiring the favour and loyalty of the government and the governed. The South Sea Act was enacted to recognise and legitimate them.
As time went on, the cost of trading skyrocketed. This led to a high demand for Royal Charters to acquire a corporate personality to undertake sophisticated business in the harsh economy. People utilised fraudulent devices to circumvent the difficulty of obtaining a proper charter from the crown.
- Unscrupulous people enriched themselves by forming sham companies with gross misrepresentation of object and financial projections. This led to the exploitation of the gullible public.
- Charters of defunct companies were acquired and utilised.
- Companies undertook businesses outside that for which they were formed.
The parliament intervened with the Bubble Act 1720. This Act prohibited people from saying that they are a corporate body except and until they have been granted a charter to carry out the particular business or purpose they purport to carry. However, this Act did not ameliorate the hardship/difficulty attendant in getting a charter.
Smart lawyers circumvented this inconvenience by executing a deed which established a “corporate-like” relationship. The courts of equity permitted this practice and noted that the Act was not contravened. This is equity’s contribution to the advancement of company law
In 1825, the Bubble (Repeal) Act was enacted. It enabled the crown to grant charters of incorporation to trading companies without giving them limited liability.
In 1834, the Trading Companies Act was enacted enabling the Crown to grant privileges of incorporation without actually granting the Charter or conferring limited liability.
Next came Joint Stock Companies Act of 1844.
- Regulated Joint Stock Companies and provided for registration of all new companies which must have not less than 25 members.
 Writers Like Sir William Holdsworth.
 To secure the charter of the crown, the town’s men had to diligently perform their civic duties.
 They just had to identify with and obey the rules of the societas.
 In Edmund v Brown and Tillard, it was recognized that a JSC can own property, survive the lives of its members, sue and be sued, and members may not be liable for debts of the corporation.
 Chartered in 1555.
 Company of Merchants of Great Britain Trading to the South Sea formed by James Blunt in 1711.
 NB: the Co paid E7,500,000. The Company also bribed certain ministers which led to the enactment of the South Sea Act to protect and legitimate them.
 The People started investing in them with little or no knowledge of the enterprise or what they undertook (speculative investment).
 Specifically Section 18 which declared it illegal and prescribed penalties thereof.
 In which the property of the company was vested in the trustees and the members were entitled to the beneficial interest in the company from its shares and profits. This made them seem like companies even if they did not have a separate legal entity. At least people could invest in the undertaking and have “trustees” do the work and at the end of the day; get their profit. These deeds were as comprehensive as today’s memorandum and articles.
 This Act provided for incorporation by mere registration. Rather than hoping for a charter or Act of Parliament.
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