Some Reflections on Company Law Reform
| Published date | 01 April 1944 |
| DOI | http://doi.org/10.1111/j.1468-2230.1944.tb00969.x |
| Date | 01 April 1944 |
| Author | O. Kahn‐Freund |
54
MODERN LAW REVIEW
April,
1944
his attention from abstract jurisprudence and from such concrete studies
as Anglo-Saxon land tenure or the manumission of slaves in the reign of
Hadrian, and to concentrate upon a subject which really matters the huge
resources of industry and learning which have already been lavished
so
unsparingly upon subjects which do not.
C.
P.
HARVEY.
SOME REFLECTIONS ON COMPANY
LAW
REFORM
DISCUSSION of the problems connected with the reform of com-
pany law can take
as
its
starting point one of the three social and
economic needs to which
a
system of company law should respond.
It
can either approach the problem from the angle of the shareholder,
and consider
as
its
principal theme the constitution of the company,
the protection of the investor who is deprived of an effective share in the
management, and the perennial conflict of interest between those respon-
sible for the management of the business and those dependent on the
assistance of the law for the safeguarding of adequate information and
enforceable minority rights. Another approach would be the interests
of the community itself in the distribution or investment of the profits
of the concern, in the prevention of fraudulent manipulations, and in
that measure of publicity which
is
the foundation of
a
well-functjoning
machinery of company legislation. The present paper
is
concerned with
a third kind of approach and with a more limited range of problems.
It
tries to analyse
a
number of topical questions of company law from the
point of view of the outside creditor. An attempt is made to help to find
a way out of a situation in which originally wholesome institutions have
been diverted to uses potentially and actually detrimental to those who,
by force of circumstances, may
be
compelled. to give credit to concerns
camed on in the form of companies. Two special topics have been singled
out for more detailed discussion: that of the abuse of corporate entity,
and that of the undermining of the company's capital as
a
"guarantee
fund" by the issue
of
shares in exchange for overvalued assets.
A
I
In
this
country as elsewhere company law has, to a large extent,
changed
its
economic and social function. The privileges of incorporation
and of limited liability were originally granted in order to enable
a
number
of capitalists to embark upon risky adventures without shouldering the
burden of personal liability. There was, in the second half
of
the nineteenth
century,
a
definite commercial need for those measures which the various
Companies Acts introduced. However, owing to the ease with which
companies can be formed in
this
country, and owing to the rigidity with
which the courts applied the corporate entity concept ever since the
calamitous decision in
Salomon
v.
Salomon
G.
Co.,
Ltd.,l
a
single trader
or
a group of traders are almost tempted by the law to conduct their
business in the form of
a
limited company, even whereno particularbusiness
risk is involved, and where no outside capital
is
required. The partnership
'
[I8971
A.C.
22.
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