writing is in future to be legal, and the long recognized custom of the City at length receives the sanction of the Legislature, but only on these express terms, viz. that the payment of the commission and the amount of rate per cent are authorized by the articles and disclosed by the prospectus 1 (Section 8).

Finally comes the question: Will the act achieve its purpose and check fraud? That it will provide work for the courts for years to come is clear. The drafting is not good and the difficulties of interpretation, some of which have been pointed out, are numerous. But criticisms of the act go deeper than that: the provisions as to the register of mortgages, the prospectus and the duties of auditors are all useful and should give some protection to the public, but as it is proverbially easy to drive a coach and four through Acts of Parliament, it should be easy to drive one through or at any rate round some of the chief provisions of this act: there is more than one way of circumventing the "commencement of business" provision, of which much is clearly expected; for instance, the company may in its articles mention some merely trifling sum on which to proceed to allotment, or if the promoters shirk the publicity of this course, they can simply start in a very small way, with seven members, all directors, a small capital of perhaps £100, issue this all nominally to the public, and so secure the Registrar's certificate; they could then at once launch out, increase their capital, say to £500,000 and proceed as at present.

Again, all the restrictions on companies which issue an invitation to the public can at one stroke be rendered futile: many companies domiciled near the Stock Exchange never appeal directly to the public at all; they are "baby creations," owing their birth to strong promoting parents, their shares are dealt in more or less artificially by the parent company, public quotations of the shares appear, and eventually the public rush in and buy: the effect of these clauses will probably be largely to encourage this underground process.

In a word, considering all the time spent upon it it is a pity that the act achieves so little.

MONTAGUE BARLOW

1 This clause has already received judicial interpretation. Matabele Gold Reef, Ltd., Sol. Jo., 1901, p. 378.

See Burrows v.

ERMAN Company Law was entirely changed and recast

by a statute passed in 1884, which introduced a number of checks and restrictions of an entirely novel character. Many fears were expressed at the time. All enterprise was to be hampered in the future and driven to foreign countries. No persons of means and standing were to be found who would incur the liabilities and risks to which directors and promoters were to be subject under the new state of things. Sufficient time has now elapsed to show that the forecast of these prophets of evil was based on misapprehension. The statistics prove conclusively that the formation of new companies, far from being arrested by the greater stringency of the law, has been progressing in a most remarkable manner, and that the career of German companies has, on the whole, been most prosperous. Some of the new

1 From the Economic Journal, Vol. X, 1900, pp. 1–19. See Ring, Aktiengesetz, 2d ed., Berlin, 1892; Pinner, Das Deutsche Aktienrecht, Berlin, 1899; Esser, Die Aktiengesellschaft, Berlin, 1899; Riesser, Die Neuerungen im Deutschen Aktienrecht, Berlin, 1899.

2 There were in Germany in 1896 according to Professor R. van der Borght's estimate (Conrad's Handwörterbuch, Vol. I, 2d ed., pp. 192–194) 3712 companies limited by shares with a total paid-up capital of over £340,000,000, and with reserve funds amounting all together to £58,000,000; the annual net earnings of 3249 companies amounted to about £32,400,000, or about 10 per cent of the paid-up capital. It is safe to assume from the figures given that not less than one-half of the total number of these companies were formed after the Act of 1884. In the blue book published by the departmental committee of the Board of Trade in 1895 (7779) a letter is quoted from Mr. Gerb of the British Consulate General at Berlin estimating the total paid-up capital at £200,000,000 (see p. 29). I showed at the time (see p. 30) that the capital must be at least £300,000,000, and the statistics given in the text prove conclusively that Mr. Gerb's estimate was still further from the truth than I suspected.

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 prepared1 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 be 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 favor of abstention from legislative inter

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

ference. 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 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 disre garded, whenever the privilege of limited liability is conferred by law; the liability of a fund having a fixed and ascertainable value should be substituted 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.

PROVISIONS AS TO VALUATION OF ASSETS ON FORMATION
OF COMPANY

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 £5000 for his profit on the transaction. These £5000 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 abovementioned 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