days, to find a member willing to purchase the share, and to give notice thereof to the seller, the shares may be disposed of as if these provisions had not been made.

3. The value of a share offered for sale though the secretary, pursuant to the last preceding clause, shall be fixed, in the first instance, by the seller. If a member, otherwise willing to purchase the share, is not willing to give the price named, the value shall be fixed by some indifferent person, to be appointed by the directors, and whose fee shall be payable out of the funds of the company.

This form is sometimes used in the case of a company which is the incorporation of the members of a firm to carry on the partnership business with limited liability.

FORM XVII.

FORFEITURE OF SHARES OF MEMBER SUING COMPANY. 1. The shares of any member who, directly or indirectly, commences, carries on, supports, or threatens any action or other proceeding against the company, or the directors, or any of them in their capacity of directors, may, notwithstanding the pendency of any such proceeding, and whatever may be the ground, or alleged ground, of any such proceeding, on the recommendation of the directors, and with the sanction of an extraordinary general meeting, be absolutely forfeited for the benefit of the company; but in every such case the directors shall, within fourteen days after the forfeiture, pay to such member the full market value of the shares at the time of the forfeiture thereof, such value, in case of difference, to be ascertained by the chairman, for the time being, of the London Stock Exchange.

The above clause is but rarely inserted, and how far it is available has not yet been settled. Where an action was brought by a member to prevent the directors from effecting an illegal reduction of capital, it was held that a pretended forfeiture by the directors under such a clause was void. Hope v. International Financial Society, W. N. 1876, 257. The same principle would no doubt apply in the case of any action brought to prevent an act ultra vires the company.

In most cases the principle of the common law is deemed fully suffi cient to protect a company from being unnecessarily worried by litigious members. The well known case of Foss v. Harbottle, 2 Hare, 461, is a leading illustration of the principle referred to, namely, that the court will not, at the suit of a minority, interfere in the internal affairs of a company. The remedy of the minority must be found within the company. And this rule applies equally where the majority actively show their approval of the acts complained of, or tacitly by not interfering.

Forms.

How value of

share to be

ascertained.

Power to forfeit shares of litigating member.

Value of

shares to be

ascertained

and paid.

Forms.

As to terms

The only exceptions to the rule are where the act complained of is ultra rires the company, or a fraud on the minority, or where the majority are acting oppressively, e.g., by attempting to secure a benefit for themselves at the expense of the minority.

The following cases in which the court refused to interfere at the suit of a minority, may be given as examples of the application of the rule. Foss v. Harbottle, 2 Ha. 461. Directors acting in contravention of company's regulations, but not ultra vires the company.

Mozley v. Alston, 1 Ph. 790. Directors acting who were not duly appointed.

Wandsworth, &c., Co. v. Wright, 18 W. R. 728; Gray v. Lewis, 8 Ch. 1036. Suit by one member on behalf of himself and other members to recover property belonging to the company. See also Russell v. Wakefield Waterworks Co., 20 Eq. 474; 23 W. R. 887; 44 L. J. Ch. 490, to same effect.

MacDougall v. Gardiner, 1 Ch. Div. 13. Alleged infringement by directors of regulations.

In Gray v. Lewis, ubi supra, James, L. J., said: "I think that it is of the utmost importance to maintain the rule laid down in Mozley v. Alston, and Foss v. Harbottle, to which, as I understand, the only exception is where the corporate body has got into the hands of directors and of the majority, which directors and majority are using their power for the purpose of doing something fraudulent against the minority." . . .

In MacDougall v. Gardiner, the same judge observed: "I think it is of the utmost importance to all these companies that the rule which is well known in this court as the rule in Mozley v. Alston, . . . and Foss v. Harbottle, should be always adhered to; that is to say, that nothing connected with the internal disputes between the shareholders is to be made the subject of a bill by some one shareholder on behalf of himself and others, unless there be something illegal, oppressive, or fraudulent -unless there is something ultra vires on the part of the company quâ company, or on the part of the majority of the company, so that they are not fit persons to determine it; but that every litigation must be in the name of the company, if the company really desire it." On the other hand the following may be given as cases in which the rule has been held not to apply :

Clinch v. Financial Corporation, 5 Eq. 450; 4 Ch. 117. Act ultra rires the company.

Menier v. Hooper's Telegraph Works, 9 Ch. 350. Majority proposing to benefit themselves at expense of minority.

Cannan v. Trask, 20 Eq. 675. Seton on Decrees, 266. Unfair contrivance by directors to hold meeting at such a date as would prevent transferees of shares from voting.

Holmes v. Newcastle, &c., Co., 1 Ch. Div. 682. Illegal return of capital.

Henry v. Great Northern Ry. Co., 4 K. & J. 1; 6 W. R. 87. Infringement of rights of holders of preference shares.

See further, Lindley, 935 and 817; and In re Hester & Co., 44 L. J. Ch. 757. Seton on Decrees, 266, et seq.

FORM XVIII.

POWER TO RECEIVE CALLS IN ADVANCE.

The directors may, if they think fit, receive from any

member willing to advance the same, all or any part of the difference between the nominal amount of the shares held by him and the amount actually paid up or called for in respect of such shares; and upon the monies so paid in advance, or so much thereof as from time to time exceeds the amount then paid, or payable in respect of instalments or calls upon the shares in respect of which such advance has been made, the company may pay interest at such rate as the member paying such sum in advance and the directors agree upon.

The above clause is sometimes used instead of Clause 20, supra, p. 150. See also Clause 7 of Table A., supra, p. 239.

See as to the position in the winding up of members who have paid up in advance, infra, notes to Form XLVI.

Forms.

on which monies may be advance of

received in

calls.

FORM XIX.

INCREASE OF CAPITAL.

increase

The company may, from time to time, increase the capital Power to by the creation of new shares. The new shares shall be issued capital. upon such terms and conditions, and with such rights and privileges annexed thereto, as the directors shall determine, and, in particular, such shares may issued with a preferential Preference or qualified right to dividends, and in the distribution of assets shares. of the company, and with a special or without any right of

voting.

The above clause may be substituted for Clauses 48 and 49, supra, p. 160, The effect will be to vest the power of increasing the capital in the directors by virtue of Clause 113 [supra, p. 183], but it is not generally deemed expedient to do this. The sanction of the company in general meeting or by special resolution is usually required.

The power to increase its capital at pleasure is a great advantage possessed by a company formed under the Act of 1862 over one governed by the Companies Clauses Consolidation Acts, 1845, which can only increase by special Act. The power is given by Section 12 of the Act of 1862. [See supra, p. 82.]

An increase of capital is so commonly required by companies that the authority is almost always inserted. It is given in Table A.

But even though not inserted Section 12 of the Act enables a company by special resolution to take the necessary power. And one special resolution is enough. Campbell's Case, 9 Ch. 1. Whereas, in case a company not having power by its regulations as originally framed to reduce its capital, desires to do so, two special resolutions are necessary, (1.) To alter the regulations; (2.) To resolve on the reduction. In re West India and Pacific Steamship Co., 9 Ch. 11, note (2).

Forms.

As to notice of increase of capital to be given to the Registrar of Joint-Stock Companies and penalty for default, see infra, "Notices." For form of notice and as to fees payable thereon. Ibid.

In Bryon v. Metropolitan Saloon Omnibus Co., 3 De G. & J. 123, 6 W. R. 817, it was contended that to borrow money was in effect to increase the capital, that the Act only authorised an increase of capital by the issue of new shares, and that to borrow was therefore illegal. But it was held that this view was incorrect. See the judgment of Kindersley, V.-C., as given in 6 W. R. 817.

See also The Peninsular Company v. Fleming, 27 L. T. 93, in which it was decided that Section 12 does not prevent the insertion with articles of provisions for a forced loan from the members. See infra, Form XXXI.

As to the Issue of Preference Shares.

Power to increase capital can, as already mentioned, be taken by special resolution where the articles do not contain the necessary authority.

But the new shares cannot be given any preference or priority over the shares in the original capital, unless the memorandum, or articles as originally drawn, contains the necessary authority.

If both memorandum and articles of a company are silent on the subject, it is an implied condition that the members shall be entitled to rank equally as regards dividend without any preference or priority between themselves, and as Section 12 of the Act (see supra, p. 82,) prohibits, with certain exceptions, any alteration of the conditions contained in the memorandum, this condition is unalterable. The implication however does not arise when the memorandum provides for the issue of preference shares; and it is rebutted where the articles registered at the same time as the memorandum award preferential rights or authorise the issue of preference shares. Hutton v. Scarborough Cliff Hotel Co., 2 Dr. & Sm. 514 (1); 13 L. T. 57; 13 W. R. 1059; Melhado v. Hamilton, 29 L. T. N. S. 364; 21 W. R. 619; Harrison v. Mexican Railway Co., 19 Eq. 368; Bangor, &c., Co., 20 Eq. 59.

Not to be able to issue preference shares is often found a serious inconvenience and loss to a company.

As it is now well settled that a power to issue preference shares inserted in the articles is sufficient, (Harrison v. Mexican Ry. Co., ubi supra,) the practice which at one time was not uncommon of referring to the issue of preference shares in the capital clause of the memorandum has, to a considerable extent, been abandoned. For one of the forms which were in use, see supra, p. 88. The following is another: "The capital of the company is 50,0007., divided into 5,000 shares of 107. each, which shares and all other shares of which the present or any future capital of the company shall consist may be divided into different classes or series, and may have such preference, guarantee, or privileges as between themselves as shall be determined by the regulations of the company for the time being." Where no articles are registered, such a clause should be inserted in the memorandum.

Power in the articles to increase the capital "by the issue of new shares of such nominal amount, and on such conditions as such resolution may determine," is not sufficient to authorise the issue of preference shares. Melhado v. Hamilton, 21 W. R. 619; 29 L. T. N. S. 364.

But where the articles authorise an increase of capital by the issue

of new shares "with such rights and privileges, or with such restrictions and on such terms and conditions as the company in general meeting directs," preference shares can be created. Webb v. Earle, 20 Eq. 556.

Where there was power to increase the capital in such manner and to be issued with and subject to such rules, regulations, privileges and conditions as the company, &c., should think fit, the Master of the Rolls held that the words "privileges and conditions" were words of extensive meaning and fully authorised the issue of new shares with a preference dividend. Harrison v. Mexican Railway Co., ubi supra.

Of course a company may only have power to give a preference as regards dividends. But it may be very desirable, especially where new shares are to be issued, to provide that the holders thereof shall be repaid their capital out of the assets in priority to the other members. See the observations on this point of Malins, V.-C., Eclipse Gold Mining Co., 17 Eq. 490. Whether the company can confer this privilege must depend on the construction of the articles. Power for the company to increase its capital" upon such terms, and either with or without special privileges or preferences to the holders of the shares in such increased capital as it may from time to time deem expedient," enables it to give a preference as regards capital as well as dividends. In re Bangor, &c., Co., 20 Eq. 59

But there is a great distinction between creating shares having a preference over those already issued, and in creating shares with deferred rights. And it would seem that shares with only a deferred right to dividend may be issued without any special authority in the articles as originally framed, for the persons who take such shares will be bound by their contract, and so will their transferees. Ashton Vale Iron Company v. Abbot, W. N. 1876, 119.

For forms of resolution for the creation of preference shares, sce infra, "Resolutions." And for clauses giving a preference in the distribution of assets, see infra, Form XLVI., et seq.

FORM XX.

OPTION TO MEMBERS TO TAKE NEW SHARES.

Forms.

1. Upon any such increase of capital the new shares to be New shares to issued in respect thereof shall be offered to the existing be offered to existing members, in proportion to the shares held by them, upon such members. terms as may be prescribed by the resolution authorising such increase, but, if no terms shall be prescribed, then upon such terms as the directors may think fit; and such offer shall be made by notice, specifying the number of shares to which the member is entitled, and limiting the time within which the offer, if not accepted, will be deemed to be declined, and after the expiration of such time, or on receipt of an intimation from the member to whom such notice is given, that he declines to accept the shares offered, the directors may dispose of the same in such manner as they think most beneficial to the company.