§ 17 shares or amount of interest shall be represented at any meeting in order to constitute a quorum; and may by its original or amended certificate of incorporation provide that any action which now requires the consent of the holders of two-thirds of the stock at any meeting after notice to them given, or requires their consent in writing to be filed, may be taken upon the consent of and the consent given and filed by the holders of twothirds of the stock of each class represented at such meeting in person or by proxy; provided, in no case shall more than a majority of shares or amount of interest be required to be represented at any meeting in order to constitute a quorum; if the quorum shall not be so determined by the corporation, a majority in interest of the stockholders, represented either in person or by proxy, shall constitute a quorum.

(As amended by Chap. 119, Laws of 1901; P. L. 1901, p. 250.)

P. L. 1846, p. 66; R. S. (Ed. of 1846), p. 139, § 3; P. L. 1849, p. 302; Act of 1875, § 21; P. L. 1891, p. 113.

The matter in bold face type, inserted by the amendment of 1901, was doubtless intended to enable corporations whose stock is widely scattered to provide against the contingency of the defeat of needed charter amendments through the inaction of stockholders and the failure to procure the attendance in person or by proxy of two-thirds in interest of each class of stockholders.

It is an open question whether this amendment accomplishes all that its framers evidently had in mind. The words, "any action which now requires the consent of the holders of two-thirds of the stock at any meeting after notice to them given," is strictly applicable to only two provisions of the statute:

(1.) Dissolution under Section 31, which requires the consent of "two-thirds in interest of all the stockholders;"

(2.) Merger or consolidation under Section 104, et seq., which requires "the votes of the holders of two-thirds of all the capital stock" (Section 105).

Both are undoubtedly within the meaning of the amendment.

Amendments to the certificate of incorporation, increases and decreases of capital stock and the other matters provided for by Section 27, require the consent of "two-thirds in interest of each class of the stockholders having voting powers." While there might be particular instances where the "consent of the holder of two-thirds of the stock" would be equivalent to the "consent of two-thirds in interest of each class of the stockholders," ordinarily it would be otherwise.

The legislature has seemingly, perhaps unintentionally, made a dis

tinction between two kinds of proceedings authorized by the Corpora- § 17

tion Act.

In one group, measures looking to the termination of the corporate existence (i. e., dissolution) or of its identity (i. e., merger or consolidation), class distinctions are not regarded and each share of stock is deemed to have an equal voice. The amendment permits any corporation, by so providing in its certificate of incorporation, to change this, first, by giving each class an equal voice, and second, by requiring the consent of two-thirds in interest of the stockholders actually present or represented at the meeting, not necessarily two-thirds in interest of each class outstanding or of all the stockholders.

In the other, measures looking to the continued existence of the company, but providing for changes in its constitution, each class of stock is deemed to have an equal voice, and the consent of the holders of twothirds of each class of stock outstanding is required. The strict language of the amendment does not permit any change in this respect.

It is open to question whether it is safe to proceed under this provision in any case provided for by Section 27. Courts are not inclined to favor amendments by indirection of important statutory provisions or to construe liberally statutes which may tend to abridge the rights of stockholders.

Sections 31, 104, et seq., and 134, seem to be governed by this amendment.

Sections 27, 28, and 119 do not seem to be affected by it.

Proxy. The power of attorney need not be in any prescribed form, nor be executed with any particular formality. It is sufficient if it appear on its face to confer the requisite authority, and that it be free from all reasonable grounds of suspicion of its genuineness and authenticity. re Election of St. Lawrence Steamboat Co., 44 N. J. Law, 529.)

(In

A stockholder may revoke any proxy by appearing at the meeting in person, as the statute only authorizes proxies in the case of absent stockholders. (Chapman v. Bates, 61 N. J. Eq., 658.)

Voting. In the absence of any provision in the certificate of incorporation to the contrary, this section secures to each shareholder one vote for each share of stock held by him and standing on the books of the company. (Section 36.) (Camden & Atlantic R. R. Co. v. Elkins, 37 N. J. Eq., 273.)

Provision may, it seems, be made in the certificate of incorporation or by-laws requiring each shareholder to hold a certain number of shares to entitle him to one or more votes. (Loewenthal v. Rubber Reclaiming Co., 52 N. J. Eq., 440.)

Such a provision should be made in the original certificate or bylaws, or if by amended certificates or by-laws, the unanimous consent of the stockholders is essential to its validity.

§ 18

For the statutory provisions regulating elections of directors, see §§ 34, et seq.

Annual meeting of stockholders.-It will be noted that the statute makes no provision for an annual meeting of the stockholders, except so far as it contemplates an annual election of directors by the stockholders. It is important, therefore, that the by-laws should be explicit as to the business which may be transacted at the annual meeting.

Notice of meetings.-The general rule is that extraordinary matters and such as cannot be fairly embraced in the transaction of business provided for by the charter itself, cannot be taken at a meeting unless notice is given. (Schwarzwalder v. Tegen, 58 N. J. Eq., 319, at p. 325, citing People Ins. Co. v. Westcott, 14 Gray, 440; Morawetz Corp., § 483; Ang. & Ames (10 Ed.) § 489.)

Adjournment of meetings.-Where a quorum assemble at a stockholders' meeting it is competent for them to adjourn the meeting to a later day, and it is not necessary to send notice of the adjournment to the stockholders. (Cook on Corporations, § 601, and cases cited.) It is frequently provided in the by-laws that those who assemble at the time and place fixed for the meeting, although less than a quorum, may adjourn until a later day. But in such cases it is the better practice to provide that notice of such adjournment be sent to the stockholders.

18. Preferred and other special stocks.

Every corporation organized under this act shall have power to create two or more kinds of stock, of such classes, with such designations, preferences and voting powers or restrictions or qualifications thereof as shall be stated and expressed in the certificate of incorporation or in any certificate of amendment thereof; and the power to increase or decrease the stock as in this act elsewhere provided shall apply to all or any of the classes of stock; but at no time shall the total amount of the preferred stocks issued and outstanding exceed two-thirds of the capital stock paid for in cash or property, and such preferred stocks may, if desired, be made subject to redemption at any time after three years from the issue thereof, at a price not less than par, and the holders thereof shall be entitled to receive, and the corporation shall be bound to pay thereon, dividends at such rates and on such conditions as shall be stated in the original or amended certificate of incorporation, not exceeding

eight per centum per annum, payable quarterly, half yearly or § 18 yearly; and such dividends may be made payable before any dividends shall be set apart or paid on the common stock, and such dividends may be made cumulative; provided, the corporation shall set apart or pay the said dividends to the holders of non-cumulative preferred stock before any dividend shall be paid on the common stock; and in no event shall a holder of preferred stock be personally liable for the debts of the corporation; but in case of insolvency its debts or other liabilities shall be paid in preference to the preferred stock; the terms "general stock" and "common stock" are synonymous.

(As amended by Chap. 110, Laws of 1901, P. L. 1901, p. 245.)

P. L. 1860, p. 603; Act of 1875, § 25; P. L. 1882, p. 252; P. L. 1889, p. 413; P. L. 1889, p. 415; P. L. 1893, p. 445, § 5.

This section was amended in 1901 in the following particulars: (1) The power to create preferred stocks under this provision is now limited to corporations organized under the Corporation Act.

(2) Preferred stock may be made subject to redemption at any time after three years; the limitation that such stock can only be redeemed at a fixed time and price to be expressed in the certificate of stock is removed.

(3) The rate of dividends and other conditions as to the issue of preferred stock must be set forth in the original or amended certificate of incorporation.

(4) If the original or amended certificate of incorporation so provides, dividends on common stock may be paid concurrently with dividends on the preferred stock.

Classes of stock.-Under the Act of 1875 only two kinds of stock were specifically authorized, common and preferred stock. By the supplement of May 9, 1889 (P. L. 1889, p. 415), a third form of stock, called guaranteed stock, was authorized to be issued for the purchase of property. The present act is broad and authorizes the creation of a number of kinds of stock and classes "with such designations, preferences and voting powers, or restrictions or qualifications thereof, as shall be stated and expressed in the certificate of incorporation," the only restriction being that the total amount of preferred stock issued at any time shall not exceed two-thirds of the paid up capital stock.

Stock may be preferred as to dividends, as to capital (either or both) or otherwise. Such stock may have a restriction or qualification of voting powers. The power to vote may be wholly taken from any class of stock. (Miller v. Ratterman, 24 N. E. Rep., 495 [Ohio, 1890].)

§ 18

Stock with preferences may have any name and designation that the stockholders see fit to give it.

The terms of the preferences and qualifications and restrictions must be stated in the certificate of incorporation, original or amended, and it is wise to insert them as well in the certificates of stock in order that there may be no question about the holders having full notice of the terms, conditions and limitations of the stock.

All preferences as to dividends and guarantees of dividends are contingent; they must be made payable only out of the net profits of the company and can be paid in no other way.

Nature of preferred stock. "There are certain legal principles pertinent to this discussion which I think are so firmly established that they may be taken for granted, without argument or the citation of authorities. First, stockholders are not creditors, and until the winding up of the corporation are entitled to nothing from it but a distribution of its net earnings; second, dividends can only be paid out of profits; third, calling stock preferred stock does not, per se, define the rights of such stock, but in order to determine in what respect the holder of such stock is to be preferred to the holder of ordinary stock, resort must be had to the statute or contract under which it is issued; and, fourth, where the statute or contract under which preferred stock is issued declares or promises that the holder of such stock shall receive a dividend of a fixed and certain rate per annum without limiting the annual sum to be paid as dividends to profits earned or made within a designated period, as for example, that he shall receive a dividend of seven per cent. per annum before any dividend shall be paid on the ordinary stock, there the preferred stockholder is entitled to seven per cent. per annum from the date of the issuing of the stock held by him, whether profits sufficient to pay him each year are made or not; and if, at the first division of profits, sufficient shall not have been made to pay him the whole sum due, he may carry the arrears due him over to the next dividend, and continue to do so until he has received the whole sum due him, calculated at seven per cent. per annum from the date of issue of the stock held by him." (Elkins v. Camden & Atlantic R. R. Co., 36 N. J. Eq., 233, 236.)

In drawing the certificates of stock where there are different or special classes great care should be exercised and the rights of the respective classes should be set out in detail.

Where one corporation made an agreement with another, by which the former was to reduce the dividends payable on its preferred stock, and the latter was to pay such reduced dividends direct to the stockholders, the alteration of the certificate of incorporation of the former so as to provide for such reduced dividends was enjoined at the instance of a non-assenting holder of the preferred stock, since his legal remedy would be inadequate. (Pronick v. Spirits Distributing Co., 58 N. J. Eq., 97.)