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
Every person is having different set of knowledge and skill with them which is different from other individual, this difference in skill and knowledge factor among various individu

QUESTION 1 The Bank of Mauritius has got various objects. It has therefore got various functions and powers in order to achieve the attainment of its objects. Discuss QUEST

District Magistrate's Court - Criminal Jurisdiction However Statute Law like as Miscellaneous Amendments Act 1983 amended the criminal jurisdiction of district magistrate's co

Statutory Companies: A statutory company is formed by a specific Act of Parliament, primarily as a means of conferring on it some powers which would not be available to it if

Determine the kinds of advocacy tactics The kinds of advocacy tactics employed by policy entrepreneurs in setting agendas and generating support for their proposals may often

A prominent Golfer was caught allegedly cheating on his wife. The evidence consists of emails and text messages from alleged paramours. The golfer has major endorsement contracts w

Direct Deliveries Limited (DDL). which is a company that specialises in selling a variety of goods to small independent retailers has grown quickly in the last three years.

Question 1: "Constructive Dismissal is inherently different from dismissal in the sense that it is the employee who necessarily takes the initiative in considering the contrac

In 2004 the Corporations and Markets Advisory Committee proposed that assets and liabilities of companies be aggregated and creditors paid from a common pool which is commonly refe

Question 1: What are the duties of the holder of a Tourist Enterprise Licence, as provided by the Tourism Authority Act? Question 2: What are the relevant consideration