This is the acknowledgment of the existence of a debt due to the Crown. Thus, when a preliminary inquiry takes place in a Court of Summary Jurisdiction, that is, the ordinary Police Court, and the case is sent for trial at the Assizes or at Quarter Sessions, the witnesses are bound over to appear and to give their evidence, at the trial, and a bond is entered into, the amount of which is forfeited if the terms of the same are not fulfilled. Similarly, if a person goes bail for another, he is bound over in recognisances to produce the prisoner in due course for trial. Again, when a case is not of a serious character, a prisoner is sometimes bound over in his own recognisances to come up for judgment if called upon. Professional accountants and others, when appointed by the Court as liquidators of companies or receivers in the Chancery and King’s Bench Divisions, have to enter into a recognisance. In each of these cases there is a debt due to the Crown which is enforceable immediately if the conditions of the bond are not fulfilled.

This is the name given to that clause in a deed by which the grantor reserves something to himself out of that which he has previously granted. In practice this clause is generally placed between the habendum (q.v.) and the covenants contained in the deed, and usually begins with the word ” yielding ” or ” rendering.” Thus, in a lease the reddendum is that clause which commences with the words ” yielding and paying,” and sets out what the lessee has to render out of the property to the lessor.

This is the name which is given to the loss resulting from the dishonour of a bill of exchange in a country other than that in which it was drawn or indorsed. By Section 57, Sub-section 2 of the Bills of Exchange Act, 1882, it is provided, ” the holder (i.e. of a bill of exchange) may recover from the drawer or an indorser, and the drawer or an indorser who has been compelled to pay the bill may recover from any party liable to him, the amount of the re-exchange thereon until the time of payment.” The mode of calculating the re-exchange is to ascertain the sum for which a bill at sight, at the prevailing rate of exchange, drawn at the time and place of dishonour, or the place where the drawer or the indorser resides, can be obta*’~ied, so as to produce at the place of dishonow the amount of the dishonoured bill, together with the cost of protest, the commission, the postage, and all other expenses in connection with the dishonour.

In a general way a referee is a person to whom any question in dispute is referred for settlement. In law, he is most frequently mentioned in connection with arbitrations (q.v.), as he is the person who is selected by the parties to the arbitration to preside over an inquiry which is held where this mode of procedure is resorted to without the intervention of the Court. When, however, an arbitration is ordered by the Court, the case is sent to one of the three Official Referees, who are invested with many of the powers of a Judge of the High Court. (See Arbitration.)

This is the name of the person to whom the holder of a bill of exchange may apply for payment in case the bill is dishonoured by nonacceptance or by non-payment. He must be named on the face of the bill, and must also consent to being named as referee, and such consent is signified by his signature being appended to words clearly setting out his position, such as, ” In case of need apply to A B,” or ” In case of need with the A and B Bank, Liverpool.” A referee, if named at all, is generally named as the guarantor for the stability of the acceptor of the bill, but if the bill is dishonoured for nonacceptance or for non-payment, a referee’s name may be inserted as the guarantor of any other party to the bill, and he then becomes liable not only to the holder but also to all parties subsequent the party for whose honour he has accepted. See Bill of Exchange : Acceptance for Honour.)

The registration of a company is by no means a matter of cheapness. On the statement of nominal capital an ad valorem duty of 1 per cent. is payable and in addition the memorandum is chargeable with duty to a maximum of

Where no allotment is made to an individual applicant for shares, it is usual for a company to send a letter informing the applicant of the fact. Such a letter is known as a Letter of Regret, and takes the following form

This is a doctrine in bankruptcy which has reference to the title of the trustee of the bankrupt to the property of the debtor. By the Bankruptcy Act it is provided that the bankruptcy of a debtor, whether it is on his own petition or on the petition of a creditor or creditors, shall be deemed to have relation back to, and to commence at, the time of the act of bankruptcy having been committed on which a receiving order (q.v.) is made against him, or, if the bankrupt is proved to have committed more acts of bankruptcy than one, to have relation back to, and to commence at, the time of the first of the acts of bankruptcy proved to have been committed by the bankrupt within three months next preceding the date of the presentation of the bankruptcy petition. Prima facie, all transactions of the bankrupt after that time are void, and the title of the trustee in bankruptcy relates back to that time. (See section 37 of the Bankruptcy Act, 1914.)

Parties to a bill of exchange who are not immediately connected with each other in order of liability upon the instrument. Of course, every person whose name is lawfully upon a bill of exchange is liable in one way or another, if the signature is genuine or authorised. But the law makes a distinction between persons, for some are known as ” immediate” and others as ” remote.” Thus, the drawer and the acceptor, the acceptor and the payee, the payee and the first indorser, and any two indorsers whose names appear immediately after each other are “immediate parties.” But an acceptor and, say, a third or fourth indorser, are remote parties.

Generally speaking, the cost of removal of plant and machinery must be regarded as a part of the cost of maintaining the revenue-producing capacity of those assets, and, as such, must be charged against the Profit and Loss Account. In certain circumstances, however, it may be argued that the cost of removal has not only maintained the revenue-earning capacity of assets, but has actually increased that capacity, and, therefore, that this cost should be added to the capital value of the assets. Where the facts support this argument, the cost of removal may be temporarily capitalised and the cost spread over two or three years, particularly if it be a heavy one, and the balance at each period carried forward in suspense. The auditor should not, however, allow the expenses of removal to be permanently capitalised by adding it to the assets accounts without calling attention to it in his report. In any event, that portion of the removal expenses which applies to the cost of removing stock should be charged against the revenue of the period within which the expense is incurred.

It is necessary first to define what is meant by ” Renewals ” and ” Depreciation.” ” Renewals ” may be taken to include the cost not only of replacing any item of capital expenditure, but also of the expenditure, e.g. repairs necessary to maintain that item in efficient working order during its lifetime. ” Depreciation ” includes the actual or estimated loss in value from any cause of buildings, plant and machinery, or furniture, and generally of such assets as are subject to loss in value by reason of wear and tear, or obsolescence, or otherwise, but which from their nature can only be valued approximatelythe more exact methods of valuation available in the case of stocks on hand, securities, book debts and the like, being inapplicable. It should be observed at the outset that certain assetsfor example : buildings, which may be slowly but steadily depreciating from some cause such as wear and tearmay be equally, or even more quickly appreciating in value from some other cause, such as the rising cost of buildings of a similar type or an increased demand for accommodation in the district in which they are situated. Logically, as much attention should be given to appreciation as to depreciation, but the usual practice is to ignore the former (which therefore constitutes a secret or undisclosed reserve), or at most to let it operate as a diminishing factor when fixing rates of depreciation. Some points of considerable importance are involved in this practice of taking into account any loss while ignoring any increase in values. It is clear that any appreciation in the value of capital items represents a corresponding increase in the amount of the owner’s capital. Such increase cannot, however, be considered an earned profit, and still less a realised profit. On the other hand, as regards depreciation, there is the vital distinction that the loss may be due to one or both of two causes, viz. (a)an actual use of the asset to earn a profit; (b)some happening quite apart from such use. In case (a) the profit earned should be charged with the loss in value of the asset used to earn such profit, for it is clearly a charge to revenue. In case (6) the loss is not usually charged against profits. Nevertheless the loss is a factor which must be taken into account if the true capital of the owner is to be ascertained. It is a loss of capital which, like all such losses not recoverable by insurance, can only be made good out of revenue if capital is to be maintained intact. In appreciation, then, there is a gain which is clearly an increase of capital, whereas in depreciation there is a loss which may be a revenue charge or a charge to capital of partly one and partly the other. Further, in the case of appreciation, the gain, although it may be very real, cannot be said to be finally determined until it is realised ; but in the case of depreciation the loss may, according to its nature, be definitely known either wholly or in part. The practice, therefore, of taking into account all depreciation, but leaving out of account any appreciation, is a prudent one, though as between two accounting parties it might operate unjustly, and therefore have to be brought into account in, for example, a dissolution of partnership. The distinction between the two types of depreciation is a very important one in the case of joint stock companies, since the payment of dividends may be affected by it. The distinction is also important in connection with returns for income tax assessment and in the cost accounts of works. Speaking generally, while it may be desirable to raise a special account for depreciation arising under case (b), such depreciation to be written off to revenue as opportunity occurs, or over a term of years, in most cases it is not legally necessary to do so before distribution of dividends out of profits or of income from a trust, subject in the latter case to the conditions of the trust. In the case of individual traders or partners, such losses might be written off capital. A limited company, however, cannot write down its share capital by a stroke of the pen, and for this reason such losses are not infrequently ignored, unless the Articles of Association provide otherwise. In all cases it is, however, necessary to make full provision for depreciation arising under case (a), and whatever the law may be it is a sound accounting principle to make adequate provision for both classes of depreciation, and it is on that basis that this article is written.

A list of rents receivable, giving particulars of the property out of which they arise, name of the tenant, and periodical amount. Columns are usually inserted showing arrears of rents brought forward, allowances made to tenants, the net amount due, and the arrears of rent to carry forward to the succeeding rent roll.

Rents, payable form a charge against revenue. Being of an accruing nature, they are apportionable in respect of time, and the auditor should see that any rent accrued or paid in advance at balancing periods is properly provided for in the balance sheet, so that an equitable charge is made against the Profit and Loss Account. The auditor should refer to the lease or tenancy agreement to determine the amount of the charge for rent and the due date of it. Where a considerable number of rents receivable exists, as in the case of cottage rents, a rent-roll should be in existence, and the auditor should examine it to see that the rents are regularly received and debited in the Cash Book. Where tenancy agreements exist, they should be referred to and compared with the rents shown as due in the rent-roll. When rents which have been previously received cease to be charged, the auditor should require an explanation, and satisfy himself by reference to any expired agreements which may be produced that the omission is in order. Particular attention must be paid to ” empties ” and ” vacancies,” which should be approved by a responsible official. All rents accrued and all arrears other than those which it is anticipated will not be recovered, should be brought into the Balance Sheet as assets. In the case of large arrears of cottage rents, it is sometimes advisable to call for the production of the tenants’ rent books, but care should be taken that the rent books produced are not fictitious ones prepared for the occasion. (See also Auditing, p. 80 ; Bankruptcy Accounts, p. 167 ; Profit and Loss Account, pp. 788 and 790).

It is advisable, where only a portion of the business premises is occupied, and the remainder is sub-let, to debit the Rent Account with the total rent payable and to credit the same account with rents received from sub-letting. In the Profit and Loss Account the gross rent paid should be shown, with the rents received from sub-lessees appearing as a deduction, the net rent being carried out. This discloses the facts of the cases, and in the event of the premises sub-let being vacant and causing the full rent to be charged against Profit and Loss, the fluctuation is self-explained. The tenancy agreements with the sub-lessees should be produced to the auditor in verification of the sums received from this source, and accruing rents or rents paid in advance should be properly apportioned and carried into the balance sheet as assets or liabilities respectively. Vacancies during which no rent is received should be approved by an official in authority, and the approval should be produced to the auditor in support of the omission to record the rents which otherwise would be receivable.

Repairs, being the cost of maintaining the earning capacity of capital assets, should be charged against revenue. This also applies to renewals, when those renewals are merely heavy repairs. But where an absolutely new machine is installed to replace a worn-out or obsolete old one, the cost of this renewal may be debited to Plant Account, provided the cost of the old machine has been reduced (by writing off depreciation) to its scrap value. In certain cases where exceptional repairs have been undertaken, it is permissible to spread the cost over a short period, inasmuch as the benefit to be derived from the repair will probably be felt for some time after the actual period, within which the expense was incurred, has ended. Care should be taken by the auditor that all repairs are properly charged to revenue, and, in cases in which renewals are debited to the Capital Account, that the asset which is replaced has been properly written off, otherwise it means an overvaluation of the asset in the balance sheet. In many classes of business the expenditure upon repairs bears a fairly constant ratio to the turnover, or to the number of machines, and a comparison of this ratio with that of previous periods, and with those in the accounts of similar businesses, will form a good test for the auditor to apply in checking the adequacy or otherwise of the sum charged for repairs. (See also Double Account System, p. 424; Profit and Loss Account, P, 791.)

The object of the creation of a Repairs Equalisation Fund is to equalise the charges for repairs against succeeding periods. The contributions to the fund, which should be charged against Profit and Loss Account, should be determined by an examination of the experience of the cost of repairs over a fairly long period. The contributions are regularly credited to the fund, and the actual repairs executed during any period are debited to the fund. As a consequence, the balance on the fund at the close of each period should be a credit balance. If the balance be a debit balance, then, unless it is caused by some exceptionally heavy repairs being executed, such as may be due to a breakdown in the machinery, it is obvious that the contributions to the fund, and consequently the charges against revenue, are insufficient, and the auditor should require them to be increased. A temporary overdraft on the fund, due to some such circumstance as that mentioned above, may, however, be permitted.

Sometimes a person is so placed with regard to certain goods and chattels that he appears, to the outside world, to be the owner of the same, although, as a fact, they are not his property. Upon this assumed ownership other persons are often induced to give credit and finally to sustain losses. This is provided against by the Bankruptcy Act, which sets out that amongst the property which is divisable amongst the creditors of a bankrupt are to be included ” all goods being, at the commencement of the bankruptcy, in the possession, order, or disposition of the bankrupt, in his trade or business, by the consent and permission of the true owner, under such circumstances that he is the reputed owner thereof.” The question whether a trader has allowed his goods to be in the possession and at the disposition of the debtor under such circumstances is entirely a question of fact.

These are certain questions which are put forward by the proposed purchaser of an estate to the vendor of the same, when a contract for the sale of real estate is being negotiated between the parties. If the contract has been properly framed, these requisitions are most important since they are generally made the foundation of the special terms of the contract.

The problem of investment of reserve funds has received in the past a large share of the attention of the leading accountants. An examination of the authorities reveals a wide difference of opinion. One tells us that ” a reserve fund is not merely a surplus shown on the debit side of the balance sheet, but must be represented by special investments.” On the contrary, another is of the opinion that the term ” Reserve Fund ” is properly used for the surplus, whether invested or not; whereas such a surplus has been described as a ” reserve ” or ” rest.” The main difference of opinion appears to be one of terminology, which is, of course, largely a question of individual taste. The more important question is whether the surplus or reserve fund should be invested ; and in determining this, we must inquire into (1)the objects of the fund ; (2)the advisability of investment in each particular case. In addition, we must consider whether the existence of the reserve fund is dependent on or assured by the investment. Dealing with the objects of a ” Reserve Fund,” they may be some or any of the following (1)to equalise dividends ; (2)to take advantage of good years to tide over less successful periods ; (3)to provide for unknown contingencies ; (4)to provide working capital by accumulating revenue; (5)generally to lend stability to the company. Taking these various cases, it will be seen that purposes (1), (2), and (3) will be served as well if the funds are available, whether they are in the business or out of it. For purpose (5) it is advisable to invest outside the business, provided a sufficiency of working capital is maintained. For purpose (4) it is essential that the money be in the business, otherwise the objects of the fund will be defeated. It will be seen that under this heading the balance appears to be slightly against investment where the money can be better employed in the business. Where there is a surplus of cash, it must, of course, be invested ; but this, it will be seen, is the result of a surplus of cash and not of profits, and might arise even where no reserve fund exists. Investments outside the business are always an advantage to a business provided the company can afford to invest, and this proviso is the main consideration in the question. A company should not make such an investment if it would by so doing deprive itself of a sufficiency of working capital; e.g. if a company already has a bank overdraft, it would be suicidal further to increase its liability by investing in, say, giltedged securities ; it would lose 2 or 3 per cent. per annum and receive no advantages to compensate the loss. Again, where a company can more advantageously employ its funds in or about its own business it would be, as a general rule, bad policy to invest elsewhere; e.g. if a company owns its business premises, which are mortgaged at, say, 4 per cent., paying off the mortgage would be a better ” investment ” than, say, Consols ; but it should be noted that in this case provision must be made for all contingencies that may be reasonably expected. These considerations will not apply where the reserve is raised for a specific purpose ; e.g. a sinking fund raised to repay a loan or issue of debentures, or to provide for the renewal of a wasting asset. In this case the nature of the fund demands that actual cash shall be available at a certain date, hence the necessity for the investment ; but this is not, strictly speaking, a reserve fund. The following example is of interest in connection with this subject. Assume that a company has the following balance sheet BALANCE SHEET (No. 1)

RESERVES.The word ” Reserve ” is used to describe a variety of items in the Balance Sheets of profit-seeking undertakings, for it has a wide range of meaning and is indiscriminately applied to conditions which are often even conflicting and in opposition to one another. The word is thus unsuitable for general use in connection with the accounts of profit-seeking undertakings because its wide range of meaning and consequent lack of accurate definition gives rise to much confusion of thought. In considering the subject, therefore, it will first be necessary to set out the nature of the varying conditions referred to and to apply individual definitions to these. For the sake of clearness, these definitions will be used in this article in place of, or sometimes in company with, the word ” Reserve.” It will be seen, therefore, that under the present practice it is impossible to know the true meaning of the word ” Reserve ” in the Balance Sheets of profit-seeking undertakings, and that the word is unsatisfying and is not suitable for use in financial accounts. It will be granted that the operation which purports to provide a charge against revenue of a kind necessary before there can be any true profit is conflicting and in opposition to the operation which purports to represent the retention in hand of true profit, and yet the word ” Reserve ” is applied equally to both, and no doubt in its dictionary meaning it is equally applicable to both, as will be seen by reference to the following extracts from the New English Dictionary Reserve sb. ” Something stored up, kept back, or relied upon for future use or advantage.” 1868. Rogers Pol. Econ. IX (1876) 103. It* is a maxim in business that a man . . . should have a hoard or reserve from which he can draw, when the times are untoward. ” The amount of capital kept on hand by a banker, insurance company, etc., in order to meet ordinary or probable demands.” 1885. J ml. Inst. Actuaries. Apr. 141. On a new method of comparing the Reserve for Policies. Reserve v. ” To keep for future use or enjoyment; to store up for (to) some time or occasion ; to refrain from using or enjoying at once.” To keep (a matter) from the knowledge of others. 1719. De Foe Crusoe 11 (Globe) 322. The ideas of Things which we form in our minds perfectly reserved, and not communicated to any. A study of these extracts shows clearly that the word “Reserve” is. accurately applied to anything stored up or kept back for future use, and, in financial accounts, this may be either a provision to answer now existing liabilities of uncertain amount, or to provide for the replacement of that part of the capital outlay which, to an uncertain extent, has already expired, or when it concerns profit it may be a retention of profit in hand to be available for future distribution. Any amount of profit so available for future distribution is, as stated above, better described as surplus than as reserve. RESERVE FUNDS.Whenever a true surplus exists, there is an equivalent amount in the hands of the undertaking, which, if absorbed in the business of the undertaking, forms an internal surplus or reserve; and if invested in other forms of value outside the actual business of the undertaking, constitutes what is known as a Reserve Fund. As the word ” Reserve ” is, for the reasons given, unsuitable for use in financial accounts, so, in the same way, the term ” Reserve Fund ” as at present used is too indefinite and has too wide a range of meaning for practical purposes in connection with the accounts of profit-seeking undertakings. Thus, amongst the meanings given to the word ” Fund” in the New English Dictionary are the following Fund. sb. ” A stock or sum of money, esp. one set apart for a particular purpose.” 1868. G. Duff Pol. Surv. 25. There is a ‘ reserve fund, valued at from two to three times the amount of the yearly expenditure. ” A portion of revenue set apart as a security for specific payments.” Fund. v. ” Originally to provide a ‘ fund ‘ for the regular payment of the interest on an amount of public debt, hence to convert a floating debt into a more or less permanent debt at a fixed rate of interest.” At present the word ” Reserve ” is applied to items representing sums kept back out of revenue receiptsby being charged to Revenue Account either for the purpose of meeting, at a future time, some otherwise unprovided for liability which has accrued and is chargeable against revenue receipts, or for the purpose of making provision for ultimate replacement of that part of the capital outlay which has already expired in the process of seeking profitsboth being part of the cost of seeking profits. In either case, the word ” Provision ” serves better than the word ” Reserve ” to distinguish the object and effect sought to be attained, as the provision out of revenue is necessary before the balance of the Revenue Account can represent true profit. And the word ” Reserve ” is also applied to items representing sums of true profit retained in hand for future use, and in this case the meaning is better distinguished by using the word ” Surplus,” for there should be surplus value to a corresponding amount existing in the hands of the undertaking. The surplus may be either an internal surplus, as when the sums retained in hand are invested in the business of the undertaking, or it may be an external surplus, as when they are invested in securities or other forms of property in the hands of, but outside the actual business of, the undertaking when the term Reserve Fund is properly applied. It is because the word ” Reserve ” is at present indiscriminately applied to items which may be either a necessary provision of amounts before profit can be ascertained, or a surplus consisting of true profit retained in hand, that so much controversy has arisen, the confusion being increased owing to the fact that these so-called reserves often include, in one item, both provision and surplus in unknown proportions. In present accounting practice the terms ” Reserve ” and ” Reserve Fund ” appear to be indifferently applied to describe items of the same character, so that in the case of one undertaking the word ” Reserve ” will appear in the Balance Sheet against a particular kind of item, while, in the Balance Sheet of another undertaking, it will be described as ” Reserve Fund.” A discussion of the meaning of the word ” Fund ” in financial accounts leads into difficult and debatable ground. In financial accounts the word ” Fund ” seems to have at least two distinct and altogether different meanings. The first meaning is identical with the meaning of the word ” Surplus ” as explained above, and there can be no true surplus unless there exists in the undertaking an excess of assets over the sum of liabilities and subscribed capital. The other use of the word ” Fund ” has a different meaning, and is the popular way of alluding to the amount of an investment set aside for a particular purpose. Unless there is a true surplus the word ” Fund ” used in this sense can only indicate a particular investment or asset, and the existence of this investment or asset is no proof that there is any surplus or true fund in the hands of the undertaking, for the word ” Fund,” in its dictionary meaning, may be used to indicate a valuable asset of any kind. Confusion Between ” Provisions ” and ” Surpluses.” In the Balance Sheets of many undertakings large sums appear as reserves, representing both provisions and surpluses of one kind or another, and there is a tendency to confuse the ” provisions” with the ” surpluses.” This is unfortunate bcause the provisions represent actual loss or expired capital outlay, whereas the surpluses represent profit retained in hand. It seems at first sight to be inexplicable that the word ” reserve ” should be used to represent losses and expired capital outlay as well as profit retained

At the close of the year a private trader credits his profits less his drawings or debits his losses plus his drawings to his Capital Account. By a simple process of book-keeping he capitalises his profits or losses from year to year. If he does not require the whole of the capital in his business he may withdraw it and invest it in securities. An incorporated company cannot so simply increase or decrease capital. It may divide the whole of its profits or carry part or the whole to a reserve or carry forward a loss. The share capital remains nominally as it was and can only be increased or decreased in accordance with the regulations laid down by its constitution or enacted by law. If it is a Parliamentary company, its proceedings are governed by Act of Parliament ; if registered under the Companies Acts by its Memorandum and Articles of Association. The Act or the Articles usually provide that before paying any dividends the directors may carry such sums to reserve as they think fit. Otherwise the whole of the profits would be divisible according to the rights of the respective shareholders. It is seldom stipulated that the reserves so created shall be invested outside the business of the company, nor, as a rule, could such stipulation be conveniently carried out. The surplus profits out of which reserves are created are seldom available in cash, but are locked up in stock, book debts and such like, the dividend usually absorbing as much cash as can be spared. The reserves are, in fact, being used as working capital just as in the case of the private trader; and if, by a book-keeping entry, the surplus profits could be added to the share capital or the losses deducted from it the analogy would be complete. The underlying principle is the same, but the legal position differs. A growing business requires a growing capital, and if no reserves were made and the whole of the profits divided, the shareholders would require to subscribe more share capital or the directors would have to borrow in order to carry on. The directors could divide the profits by way of dividend and then invite the shareholders to subscribe share capitalto put the dividends in one pocket and find cash for shares from the other. As regards profits accumulated as reserves, this, in fact, was the process followed in the case of the Consett Iron Company which, as regards shares in the company vested in trustees under a will, led to litigation between a life owner and a remainderman in the well-known case Bouche v. Sproule (12 A pp. Cas. 385), in which it was held that the shares were part of the capital of the trust. If the accumulated income be retained in the company’s business as a reserve, a form of capital which does not absorb profits by way of interest, the shareholders ought prima facie to get increased dividends on the share capital, which remains the same, and the market value of the shares should increase accordingly. Sometimes the shares go to so high a premium as to make them less marketable. In such cases, at one time, companies used to liquidate and reconstruct with a larger share capital, the shareholders receiving more fully paid shares in the new company than they held in the old without finding more money. Owing to a lack of flexibility in the legal procedure relating to companies this process is not only expensive but inconvenient, for the liquidation must be carried out and the proceedings advertised just as if the company were insolvent. The modern method is to amend the Articles if necessary by inserting Articles such as the following 1.The Company in General Meeting may from time to time resolve that it is desirable to capitalise any part of the undivided profits of the Company, whether standing to the credit of the Reserve Fund or Profit and Loss or otherwise, and accordingly that the said part of the undivided profits be set free for distribution free of income tax among the members in accordance with their rights, and that the same be not paid in cash but be applied in payment in full or in part of shares of the Company and that the said shares be distributed among the members in accordance with their rights. 2.When such a Resolution as aforesaid shall have been passed on any occasion the Directors may allot and issue the shares therein referred to, credited as fully or partly paid up as the case may be, to the members according to their rights, with full power to make such provisions for the case of fractions by the issue of fractional certificates or otherwise as they think expedient. Any General Meeting declaring a dividend may direct payment of such dividend wholly or in part by the distribution of specific assets, and in particular of paid-up shares, debentures, or debenture stock of the Company, or paid-up shares, debentures, or debenture stock of any other company, or in any one or more of such ways, and the Directors shall give effect to such Resolutions. The Company may at any time and from time to time in General Meeting pass a resolution to the effect that it is desirable to capitalise any undivided profits of the Company (including the whole or any part of the undivided profits for the time being standing to the credit of any Reserve Fund, Suspense Account or otherwise, or any profit realised upon the sale, or shown by a revaluation of capital assets), and that the same be set free for distribution among the Shareholders in accordance with their rights in the profits upon the footing that the same be not paid in cash but be applied in paying up an equivalent amount of shares of the Company. Any shares issued in pursuance of the powers of this Article shall be distributed among the Shareholders as aforesaid with full power to the Directors by the issue of fractional certificates or otherwise as they think expedient to make provision for the case of fractions, and the Directors shall give effect to any such resolution accordingly, and any shares allotted pursuant to any such resolution shall be credited as fully paid-up by means of the profits aforesaid. If and whenever necessary the Directors shall cause a proper contract to be filed in pursuance of Section 88 of the Companies (Consolidation) Act, 1908, in respect of shares so allotted, and the Directors may appoint any person on behalf of the holders of the shares of the Company, issued prior to such allotment to enter into such contract with the Company, and any such appointment so made and any contract so entered into shall be as valid and effective as if the same had been made and entered into by such Shareholders personally. Bonus shares are then allotted in accordance with the Articles, and if thought necessary an agreement is filed between the company and the trustee for the shareholders, though the filing of a deed is probably superfluous where the reserve arises out of divisible profits. By this means the dividends paid become proportionate to the real capital at stakethe original capital plus the accumulation of profitsand the shares become more marketable. Moreover, the working capital is definitely retained in the business and the financial position strengthened. There is one danger, and that is that in the event of a severe fall in values, the reserves having been capitalised are no longer available to write down stocks or provide for exceptional losses under forward contracts. In such a case, owing to the reserve having been crystallised as share capital, a company may be possessed of large liquid resources, but arising out of subsequent losses may have a debit to Profit and Loss Account. If so, when again making-profits it can only pay dividends out of them by ignoring the debit to Profit and Loss Account. According to a judicial pronouncement in The Ammonia Soda Co., Ltd. v. Chamberlain [1918], 1 Ch. 266, a payment of this nature is, however, quite legal, though it may give rise to the anomalous position that while the assets representing the bonus shares have quite disappeared, the bonus shares remain and are earning dividends. In cases of undue inflation and where reserves have all been capitalised without leaving any provision at all for deflation this may very well happen. The underlying principle of the case referred to is not unsound. If it were otherwise, the private trader who has a debit to Profit and Loss Account ought in theory, in order to maintain his capital, to starve until his profits wipe out his losses, an obviously absurd conclusion. Another objection to the capitalisation of reserves is that the increase of share capital renders it more difficult to raise new capital when required as the rate of dividend may be decreased and be more difficult to maintain owing to the increase of capital arising out of the issue of bonus shares. In the case of some companies assets have been written up on a revaluation and the increase carried to reserve and bonus shares distributed thereout. Where this course has been adopted all the shareholders have been made parties to a contract of allotment, so that if in a winding up the assets did not realise the figure to which they had been written up and the shareholders were not paid in full they could not make any claim. This course is not practicable in the case of public companies. Even if it be adopted in the case of a winding up and the creditors not being paid up in full, the shareholders would probably be liable to pay up in full and the directors might be liable as having acted ultra vires. The position of the individual shareholder, where through capitalisation of reserves he receives bonus shares, has led to much litigation. As already mentioned, it has been definitely decided that as between life owner and remainderman the bonus shares are capital and go to the remainderman. It has also been decided that bonus shares are not income liable to Super-Tax in the hands of the shareholders. On the other hand, the private trader pays Super-Tax on the whole of his profits whether carried to capital or otherwise, a distinction which favours the conversion of private businesses into companies so that in effect the trader, as a limited company, may only pay Super-Tax on his drawings. The Corporation Profits Tax may, however, be looked upon as a preliminary attempt to apply Super-Tax to company profits whether divided or reserved.

This is the person who is entitled under a will to all that remains of the personal property of the deceased after the various legatees have had their claims satisfied. Unless otherwise provided for, the shares of any legatees who predecease the testator fall into the residue and become the property of the residuary legatee. If there is no residuary legatee named in a will, there is an intestacy as to the residue of the property and the lapsed legacies (if any), and this undisposed-of property is divided according to the Statutes of Distributions.

The business of company meetings is transacted by means of resolutions. The form of the resolution depends primarily on the particular business and the provisions made by statute, and secondarily upon the Articles and Memorandum of Association. For ordinary business and for any other business of the company not specially provided for in the Articles or the Companies Acts, an ordinary resolution is all that is necessary, that is, a resolution passed by a simple majority of those voting at a regularly constituted meeting of the company. An extraordinary resolution is one which is required for certain purposes in winding up, particularly to commence voluntary winding up when by reason of inability to pay its debts the company is of opinion that it should be wound up. Such a resolution is formally passed by a majority of not less than three-fourths of such members entitled to vote as are present in person or by proxy at a general meeting of which notice specifying the intention to propose a resolution as an extraordinary resolution has been duly given. A special resolution is required in all cases of business involving an alteration of the Articles of Association, and in addition in all cases where this land of resolution is specified in the Articles. Thus the Articles could provide that all business at an annual general meeting should be transacted by means of a special resolution, although such course would be unusual. A resolution of this kind is passed in two stages ; in its first stage it is exactly like an extraordinary resolution, but is not deemed to be carried until it has been confirmed at a specially convened meeting held not less than fourteen days nor more than one month after the date of the first meeting. In the confirmatory resolution the majority required is a simple majority of those persons present and entitled to vote at the confirmatory meeting. A special resolution would in the notice calling the meeting be referred to as such and the substance of the resolution would form part of the notice. (See also Meetings ofLimited Companies.)

In almost every marriage settlement that has been made during the last century and a half, where any interest in the settled funds has been given to the wife, it has been the custom to insert a clause by means of which her right is exclusively confined to the income which is to be paid to her as and when it becomes due. The great object of a clause of this kind is to prevent a woman bargaining away her future accruing property in such a manner that she might reduce herself to a state of destitution. A clause of this kind is known as a ” restraint on anticipation.” There is no limitation as to the inclusion of a restraint of this character when the trust funds are provided from some other source than the married woman herself, but if it is she who provides a portion of the trust funds, the restraint, which binds her property so long as she is a married woman most effectively, will not be allowed to operate as against those persons who were her creditors prior to the date of the marriage. By the Married Women’s Property Acts, 1882 and 1893, a married woman can contract in respect of her separate property as though she were a feme sole, whether that property is actually in possession or is to fall due to her at some future date. If, on the other hand, being a married woman and being entitled to an income out of certain settled funds, there should be a restraint on anticipation contained in the settlement, she can never contract except in respect of money which she has actually in possession. Let us take the following illustration. A married woman has property or earns an income amounting to ^200 a year. She can enter into any contract she likes, and since the Act of 1893, either the money that she has in hand or any future income becomes liable for the liquidation of the debt incurred. If, on the other hand, an income of a similar amount is paid under a marriage settlement containing a clause of restraint, and the income is paid in quarterly sums of

In order that full disclosures as to the financing of a company may be afforded to shareholders and to the public, the Companies Acts require that returns of allotment of shares shall be made from time to time to the registrar of joint stock companies. The requirements of the Acts in this direction are now fixed by Section 88 of the Companies (Consolidation) Act, 1908. The effect of this section is that where shares are issued in consideration of a cash payment a return must be made within one month from the allotment, the return showing the number and nominal amount of the shares allotted, the names, addresses and description of the allottees, and the amount paid or due and payable on each share. A similar return is required where shares are allotted in the whole or part for a consideration other than cash, and, in addition, a contract in writing duly stamped constituting the title of the allottee to the allotment, together with any contract of sale or for services or other consideration in respect of which the allotment is made, such contract being duly stamped. These returns are in addition to the list and summary required to be filed annually under Section 26, and default in complying with the provision is visited by a fine of not exceeding