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balance sheet is properly drawn up so as to exhibit a true and correct view of the state of the company's affairs as shown by the books of the company. This report must be read before the com- pany in general meeting. The balance sheet in the annual sum- mary, and certain statements in the statutory report, must be audited by the auditors. If an auditor makes in his report a state- ment false in any material particular, knowing it to be false, he is guilty of a misdemeanour. Proceedings may also be taken in a winding up against an auditor for misfeasance, and in one case in England the auditor was held liable to repay a dividend improper- ly declared in reliance on a misleading certificate given by him, Ordinance, Nil; Act, Sections 26 (3), 65 (4), 112 to 114, 215, 281; Bill, Clauses 27 (4), 66, 112 to 114, 204, 259.
Private Companies,
These are introduced for the first time. A "private company' means a company which by its articles :---
(a.) restricts the right to transfer its shares; and
(6.) limits the number of its members (exclusive of persons who are in the employment of the company) to fifty;
and
(c.) prohibits any invitation to the public to subscribe for
any shares or debentures of the company.
It may be formed by two or more persons and may be wound up if the number of members falls belows two: the corresponding number for an ordinary company is seven, As the public are not invited to subscribe for shares, and as private companies are small and intimate, the ordinary restrictions as to allotment, commence- ment of business, and the appointment or advertisement of directors, do not apply, and the statement in form of a balance sheet, the statement in lieu of a prospectus, and the statutory report, need not be filed. Preference shareholders and debenture-holders have no right to receive or to inspect the reports or balance sheets of a private company.
Otherwise private companies are subject to the same provisions as an ordinary company. They were introduced in the United Kingdom by the Companies Acts of 1900 and 1907. Ordinance, Nil; Act, 2, 26 (3), 65 (10), 72 (3), 82 (2), 85 (vii), 87 (6), 114, 115, 121, 129 (iv), 137 (i); Bill, 2, 27 (4), 66 (10), 73 (3), 83 (2), 86 (7), 88 (6), 114, 115, 121, 129 (iv), 131 (i).
Power to Compromise.
Power is given to the court to sanction a compromise between a company and its creditors or any class of them, or between its members or any class of them, provided that the compromise is approved by a three-fourths majority in value of the creditors, members, or class in question. Formerly the power existed only where the company was being wound up. Ordinance, Section 192; Act, Section 120; Bill. Clause 120,
Winding up by the Court.
Under the present law, the Court appoints in each case au Official Liquidator" to wind up the company. This officer is of course not a Government official, but is usually an ex-employee of the company, a public accountant, or other suitable person. He is subject to the general control of the court, and has to come to the court at various stages in the winding up. Some of his functions he can perform only with the sanction of the court. The Registrar of the Supreme Court has to countersign all his cheques, must join in any request for the investment of the moneys of the company, and keeps the documents representing such investments. But apart from the above he is subject to no regular and systematised
control.
The Companies Act of 1890 introduced in England a stricter control and placed it in the hands of a Government official called the "official receiver" and of the Board of Trade. This system is continued by the Companies (Consolidation) Act of 1908, and is adapted to Hongkong by the present Bill. In the High Court a special officer is appointed as official receiver for the purpose of