much,
indeed, to say that the fastening of an onerous or improvident contract
on a company at its start, by interested promoters acting in collusion
with the directors, has been the principal cause of the scandals
associated with company promotion.

Concurrently with the adoption of the contract for the acquisition of
the property which is the company's _raison d'etre_, the directors have
to consider how they will best get the company's capital subscribed.
Down to the passing of the Companies Act 1900 the usual mode of doing
this was to issue a prospectus inviting the public to subscribe for
shares. After the act of 1900 the prospectus fell into general disuse.
In the year 1903, out of a total of 3596 companies which registered,
only 358 issued a prospectus, the directors preferring, it would seem,
to place the share capital through the medium of brokers, financial
agents and other intermediaries rather than run the risk of incurring,
personally, liability under the stringent provisions for disclosure
contained in the act (s. 10). Of late the prospectus has, however,
returned into favour. Under the act of 1907, incorporated in the
Consolidation Act 1908 (s. 82), a company, if it does not issue a
prospectus, must file a statement of all the material facts relating to
the company.

Prospectus.

A prospectus is an invitation to the public to take shares on the faith
of the statements therein contained, and is thus the basis of the
agreement to take the shares; there therefore rests on those who are
responsible for its issue an obligation to act with the most perfect
good faith--_uberrima fides_--and this obligation has been repeatedly
emphasized by judges of the highest eminence. (See the observations of
Kindersley, V.C., in _New Brunswick Railway Co._ v. _Muggeridge_, 1860,
1 Dr. & Sm. 383, and of Lord Herschell in _Derry_ v. _Peek_, 1889, 14 A.
C. 376.) Directors must be perfectly candid with the public; they must
not only state what they do state with strict and scrupulous accuracy,
but they must not omit any fact which, if disclosed, would falsify the
statements made. This is the general obligation of directors when
issuing a prospectus; but on this general obligation the legislature has
engrafted special requirements. By the Companies Act 1867, it required
the dates and names of the parties to any contract entered into by the
company or its promoters or directors before the issue of the
prospectus, to be disc