INCORPORATION BY REGISTRATION - FEATURES OF THE REGISTERED COMPANY

Incorporation of associations prior to the passing of the Joint Stock Companies Act 1844 was restricted and it occurred in only two major circumstances: first, when the Crown granted a royal charter as an act of prerogative power, conferring corporate status, for example, on trading associations, such as the South Sea Company or the East India Company; and secondly, via a practice which occurred more commonly from the late 18th century onwards, when a statute incorporated a company, usually to construct and run public utilities, such as gas and water supplies and the canals and railways.

The incorporating statute was a private Act of Parliament and the sections of the Act gave the company its constitution. For Blackstone, the King’s consent was absolutely necessary for the creation of a corporate body, hence, the idea that, in England, incorporation and the creation of a non-natural legal person was a concession.

Blackstone described the above two methods of incorporation as being with the express consent of the King. Another less frequently occurring method of incorporation was by prescription, where the King’s consent was presumed. This was because, although the members could not show any charter of incorporation, the corporation had purported to exist as such from a ‘time whereof the memory of man runneth not to the contrary’ and, therefore, the law was willing to presume that the charter had been originally granted but subsequently lost.

An example of this type of incorporation was the City of London. Finally, although not a method of incorporating an association, another example of where the King’s consent to incorporation had been implicitly given was where the common law, by custom, recognised that certain officeholders had a separate legal personality in addition to their own natural personality. Such offices included bishops, vicars and even the King himself.

On the death of the officeholder, the office and the corporate personality are transferred to the successor. These are known as ‘corporations sole’ to distinguish them from incorporated associations, which are known as ‘corporations aggregate’.

Quite apart from these corporations, though, during the 18th century, there grew up an entirely different form of business association, which, because of its importance in commercial enterprise, ultimately provided much of the impetus for reform. This became known as the ‘deed of settlement’ company.

As a result of the difficulties in obtaining corporate status, and because an unincorporated body of persons could not hold property, except as partners, and the Bubble Act of 1720 made it illegal to pretend to act as a corporate body,20 the device of the trust was used, so that money property of a group of persons associating together for the purposes of business could be put into a trust and trustees could be appointed to administer it.

There was, therefore, a ‘joint stock’ held under trust and, although there was, in fact, no corporation, all the parties, for all practical purposes, acted as if there were one. Shares in ‘the company’ could be issued to the persons contributing property to the joint stock and each person would execute a covenant that he would perform and abide by the terms of the trust.

The difference between these unincorporated companies and partnerships was that the unincorporated companies enjoyed continuous existence with transmissible and transferable stock but, unlike partnerships, no individual associate could bind the other associates or deal with the assets of the association.

The ingenuity of the legal draftsmen in drawing up the trust deeds brought about a situation where groups of associating persons achieved corporate status for all practical purposes, so that, as Maitland was able to say: ... in truth and in deed we made corporations without troubling King or Parliament, though perhaps we said we were doing nothing of the kind ... and that the trust:
... in effect enabled men to form joint stock companies with limited liability, until at length the legislature had to give way.

The legislature did give way in a major and significant way in the Joint Stock Companies Act 1844, which introduced, for the first time, albeit in a rather long winded form, the notion of the formation and incorporation of a company for a commercial purpose by the act of registration by a promoter.

No longer did would-be corporators have to obtain a royal charter or await the passing of an incorporating statute. Incorporation could be obtained by the administrative act of registration. The equivalent section in the 1985 Companies Act reads:

Any two or more persons associated for a lawful purpose may, by subscribing their names to a memorandum of association and otherwise complying with the requirements of this Act in respect of registration, form an incorporated company, with or without limited liability.

And, by s 13(3):
From the date of incorporation mentioned in the certificate, the subscribers of the memorandum, together with such other persons as may from time to time become members of the company, shall be a body corporate by the name contained in the memorandum.

The act of registration creates the corporation. The drafting of these sections inherited from previous Companies Acts seems to imply that the body corporate is simply the aggregate of the subscribers and members and this is why, in the 19th century, a company is referred to in judgments as ‘they’ or ‘them’. This view is wholly superseded by the view that a company is separate from, and additional to, the members and is now always referred to as ‘it’.

The former view seems especially strange now that there is the possibility of companies being formed with a single member. Among the disadvantages of the old deed of settlement companies was the difficulty in suing and enforcing judgments against them, since they essentially remained large partnerships. But, from this very first statute introducing the notion of incorporation by registration, the option of continuing to carry on trade in the form of a large partnership was severely circumscribed to deal with this problem.

The 1844 Act required partnerships of more than 25 persons to register, thus compelling the use of the new form of business association. Thus, there is one readily identifiable legal persona, which can sue to enforce the rights of the business and which can be sued to be held accountable for the obligations of the business.

The present day successor to this provision is s 716 of the Companies Act 1985, and the number of partners has been reduced to 20. There are, however, express exceptions contained in the section, allowing, for instance, solicitors and accountants to practise in partnerships of unlimited size.