Brokerage - raising of capital, Business Law and Ethics

Brokerage:

Brokerage is a payment made by a company to a broker, or brokers, in consideration for "placing" the company's shares. It differs from underwriting commission in that it is a payment made to an agent who is selling the company's shares on its behalf without undertaking to buy the shares which he fails to sell. In Andreae V Zinc Mines of Great Britain Ltd (45) Bailhache, J. explained that a payment is brokerage only if it is made to "stockbrokers, bankers and the like that who exhibit prospectuses and send them to their customers and through whose mediation the customers are induced to subscribe" as. Consequently, a payment which was made to a lady of a percentage on the amount of capital which she induced third parties to subscribe for shares in the defendant company was held not to be brokerage. The lady could not be regarded as a "broker" on the basis of such an isolated transaction. The person to whom the payment is made must be one who carries on the business of a broker, either exclusively or as part of his general business, as in the case of a banker.

Subsection (3) provides that nothing in Section 55 "shall affect the power of any company to pay such brokerage as it has heretofore been lawful for a company to pay". It was previously held in Metropolitan Coal Consumers' Association V Scrimgeour (1895) that brokerage of a reasonable amount paid by a company in the ordinary course of its business was legal. In that case the brokerage was 2 1/2%. The usual brokerage varies between 1/4% - 1/2%. The reasonableness of the commission does not depend on mere percentages but on what it would cost the company to sell the shares by itself. If, by paying the brokerage, the company would spend less money in selling the shares then the payment would be regarded as a reasonable one. Although the payment of brokerage is a derivation from mercantile usage it is usual for companies to incorporate in their articles a clause which expressly authorises the company to pay brokerage. For example, Article 6 of Table A provides that "the company may also on any issue of shares pay such brokerage as may be lawful".

Although payment of brokerage means that the company will ultimately receive less money for the shares it has issued the payment is not prohibited by the Act. It is essentially an expense which is incidental to the issue of the shares and a company cannot avoid incurring such an expense.

Posted Date: 1/12/2013 4:12:45 AM | Location : United States







Related Discussions:- Brokerage - raising of capital, Assignment Help, Ask Question on Brokerage - raising of capital, Get Answer, Expert's Help, Brokerage - raising of capital Discussions

Write discussion on Brokerage - raising of capital
Your posts are moderated
Related Questions
STATE SUCCESSION International law regulating state succession deals with the situation where there is a change in sovereignty over a particular territory. State succession occ

Liability of Incoming Partners and Death of a Partner Liability of Incoming Partners However Unless a new partner makes a individual agreement to the effect such he wil

Powers of Managing Director:             Article 109 offers that "the directors may entrust to and confer upon a managing director any of the powers exercisable by them upon s

State Article 14 of air and outer space law Article 14 refers to the fact that each contracting State should agree to take effective measures to prevent the spread by means of

Obiter Dictum Thus now  "by the way" statement made through a judge before delivering his judgement within  a view to  strengthening or re-enforcing his reasons to the decis

Stakeholders emphasised that a coordinated, whole of government approach is necessary to mitigate phoenix activity. Stakeholders also emphasised that options should recognise th

Do a comprehensive outline and a research paper. A well-organized and thoughtful 3-5 page Research Paper in APA format. The impact and use of technology in policing and the cour

Explain the Case Clipperton Island In Clipperton Island Case , an award was made in the arbitration which resolved a dispute between France and Mexico, in 1887, on the subjec

QUESTION 1 Discuss the possible defences available to a trustee in proceedings for breach of trust QUESTION 2 Consider the legal differences between a custodian and a m

Ahtesh is the promoter to a company not yet incorporated. As promoter he bought two excavators on behalf of the company as the latter would be building and running a hotel. While t