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PROBLEMS OF THE HAULIER AND CARRIER.

21st December 1926
Page 66
Page 67
Page 66, 21st December 1926 — PROBLEMS OF THE HAULIER AND CARRIER.
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Which of the following most accurately describes the problem?

Limited Companies and Small Haulage Businesses. The Advantages that Accrue from Registration Under the Companies Acts.

A QUESTION often asked by hauliers or carriers who have an established connection, generally in their own names or in the joint names of two or more. partners, is concerning the advisability of forming a limited company to take over the business. It is popularly realized that the liability of the shareholders is limited, hence the term "limited company," but there are other points which are not so generally recognized. In many cases a man buys a vehicle and after a few years' work extends his business until it assumes fair proportions; this increase in itself causes a number of difficulties to arise with regard to the administration. Although in some cases the conversion of a business into a company calls for a certain amount of extra clerical work in connection with returns and statements required by law, the resulting advantages often justify such work and' turn the office side of the business into a cut-and-dried affair, which enables the proprietor or partners to keep a closer cheek upon the working than would be the case when an ordinary partnership is in existence and clerical routine is allowed to become slack.

Partnership or Limited Liability Company.

A common trouble which gives rise to the desire for the formation of a company is the lack of agreements in black and white; this frequently leads to disputes, which, in turn, threaten the very existence of the concern. Where two or more men are partners they are sometimes safeguarded by agreements, but the legal enforcement of one or more clauses often tends directly to a severance of business relations and the morale of the undertaking suffers.

It is to the formation of a private limited company, then, that the parties turn in the hope of improving the position and putting the business on a more stable footing. .1 There are two main cases to be considered. Taking the launching of an entirely new company as the first example, tentative arrangements with regard to capital will be made before putting pen to paper. When one or two ha.uliers decide to start a new company, they generally make their plans with regard to capital or arrange a meeting with selected friends to discuss matters, and this is an essential preliminary step. Either the capital is required to ,buy vehicles and premises and to pay the initial expenses of the spade work which has to be done to inaugurate the new concern, or the funds have to go to pay out retiring partners or to meet the claims of the executors of the retiring or deceased Partner when another undertaking is being purchased.

More common, however, is the formation of a company to take over the existing interests of private c44 persons who own haulage businesses. In .this case " outside " money is sometimes not required, as the pro' prietor or partners hand over the business to the company in return for cash, or shares and cash. It is not necessary that all the assets of the old concern be taken over by the company,.but this is a matter which has to be decided in view of the particular circumstances of the case, and the solicitor who is entrusted with the task of forming the company and drawing up the documents will advise in this connection.

It is desirable in most instances that an agreement be entered into between the proprietor or partners and the new company, setting forth exactly what transfer takes place; thus disputes can be avoided and any new persons entering the business can see exactly what they have a right to control and what is outside the powers of the members of the company.

The Private Limited Company.

Mention has been made of a private limited company; a brief definition of this term will be an advantage at this point. Three outstanding features of such a company are the restriction of the right to transfer shares, the limiting-of the number of members of the company to 50, excluding members of the staff, and the prohibition of public dealings in the shares or debentures of the company.

The advantages of the incorporation of such a com: .pany are severpl. Among them may be mentioned the limiting. of the liability of members to the unpaid amount, if any, of the shares which they hold. The interests of each and all engaged in the business can easily be regulated, whilst the appointment, retirement or removal of directors can be carried out in quite a simple manner without seriously affecting the continuity of the business. The formation of a private limited company also mr kes it comparatively easy to increase the capital if desired, and employees can be properly safeguarded if they desire to take up shares in the business. This is a distinct advantage in many cases, as they are thus encouraged to take a practical interest in the affairs of the company and their working efficiency will be improved thereby. In the event of the death of a shareholder, the undertaking is not affected to such a serious extent as in a partnership, if at all.

It must not be overlooked, however, that shares in a private company cannot be said to have any real market value; for example, if £1,000 be invested and five years later the shareholder wishes to leave the company, he has no guarantee that he will obtain his £1.000 again or any definite part of it. He may find another person willing to take over his shares at a satisfactory figure, but

the right to transfer those shares does not lie in his own hands, as the directors may not be agreeable to the entry of the new party; thus personal feeling to a certain extent enters into the proceedings, and this fact should be borne in mind when investing money in the company. In the case of a public limited company, the shares of which can be bought and sold at a current market price, this objection does not hold good, but the majority of small companies in the haulage trade is of the private limited type.

Other points which favour the private company method are the fact that only two persons are required to form the company. Where a public concern is advocated there must be seven members ; thus it will be s“qt that in the case of, say, a father and a son running a business who do not desire outside financial help, a private company is, obviously, the thing. There is no need to tile a balance sheet, but a public company mast incorporate such astatement in every annual return of members and capital.

The actual details involved must in every case be dealt with by et qualified solicitor, the.valee of whose services should not be measured by the mere compiling of a few documents, as he can give advice which will help materially in the progress of affairs. For example, if the proprietor of an existing business wishes to retain the book debts as his own assets he can do so, but the solicitor will advise him as to the best method of doing this, in view of the nature of the work, the size of the future company and the value of the debts, whateyes they may be.

Concerning the amount of capital, it is general to fix a nominal capital in excess of what it is anticipated will be required for some considerable time, as it is then possible to increase the capital within the prescribed limits without further legal business. On the other hand, one should not be tempted to go to extremes, as the stamp duty increases in proportion to the size of the capital, and nobody wishes to spend a great deal on decorating documents when the sum named will not really be required for carrying on the business, and• people in these days are not as a rule deeply impressed by the sight of figures showing a big nominal capital, particularly when the proportions of the business do not compare favourably with them.

In the past there have been many examples of overcapitalization and quite a large proportion of these has failed partially or completely, with the natural result that investors are not always tempted in this way. S.T.R.

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