Forms. clause. 2. But if the company, after having attached to any new Qualification shares, created as aforesaid, any preference, or other special of preceding privilege, shall create any further new shares, the holders of the first mentioned new shares shall not, in respect thereof, be entitled to any offer of the last mentioned new shares, unless the company otherwise determine. Subscribers to appoint first directors. The above clauses are occasionally used. FORM XXI. FIRST DIRECTORS. The first directors shall be nominated by the subscribers to the memorandum of association either by a memorandum under their respective hands entered in the minute book, or by a resolution carried at a meeting of such subscribers, at which a majority shall be present, and until such directors shall be so appointed the said subscribers shall be deemed to be the directors. Another form. As to appoint ment of addi tional directors. Qualification of directors. FORM XXII. The first directors shall be appointed as follows: that is to say, two by A. B., a subscriber hereto; two by C. D., a subscriber hereto; and one by E. F., party to the said agreement referred to in clause hereof. FORM XXIII. POWER FOR DIRECTORS TO APPOINT ADDITIONAL DIRECTORS The directors shall have power, from time to time, to add to their number, subject to the limit hereinafter mentioned, at any time before the second ordinary general meeting of the company. FORM XXIV. DIRECTORS' QUALIFICATION. No person shall be elected or appointed a director unless he shall have been the holder of his share qualification for at least months before his election or appointment, but this clause shall not apply to the directors hereby appointed, or to or to any directors appointed under Clause elected upon the recommendation of the directors. See supra, p. 174. FORM XXV. APPLICATION TO PARLIAMENT. directors to The directors may promote, in the next or any ensuing Power to session of parliament, a bill for the dissolution of the company promote bill. and the incorporation of the members thereof as a company, with objects similar in part or altogether to those of this company, or for conferring any powers on this company which the directors may deem necessary or desirable for carrying out the objects of the company, and may pay the costs of and incident to the promotion of any such bill out of the funds of the company. Such a clause is sometimes inserted. It must, however, be borne in mind that unless expressly or impliedly authorised by its memorandum of association, a company cannot apply any of its funds in defraying the expenses of obtaining an Act altering the constitution of the company. Such an application of its funds is ultra vires the company, and the. Court will interfere at the instance of even one dissentient member. If, therefore, upon the formation of the company, application for any such act is contemplated, the memorandum should be framed accordingly. See supra, pp. 110, 123. But, although, if the memorandum be not so framed, the expenses cannot come out of the company's pocket; any of the members are at liberty, at their own expense, to apply for an Act which, if passed, will affect the whole company and change its constitution. Those shareholders who object to the application must oppose it in Parliament. See Lindley, 628, and Ware v. The Grand Junction Waterworks Co., 2 R. & M. 470; and other cases cited in Lindley, ubi supra. See also Mathias v. The Company, &c., of the Berks Canal Navigation, W. N. 1876, p. 91, and (on appeal) p. 158. In this case the company was about to apply for an Act affecting its constitution, and a dissentient member sought for an injunction to restrain the application, and to prevent the payment of the expenses out of the funds of the company. It was held, however, that the plaintiff was bound to submit to the will of the majority, and upon an undertaking being given by the company not to apply its funds to the promotion of the bill, the injunction was refused by the V.-C. Malins, whose decision was affirmed on appeal. The following standing orders of the House of Commons, Session 1877, may here be mentioned : 63. Every bill originating in this House, and empowering or requiring any company. . . . formed or registered under the Companies Act, 1862, ... to do any act not authorised by the memorandum and articles of association of such company . . . shall, after the first reading thereof, be referred to the examiners, who shall report as to compliance or noncompliance with the following order : Forms. Lords. In the case of a company, formed or registered under the Companies 65. In the case of every bill brought from the House of Lords, in which provisions have been inserted in that House, empowering or requiring any company . . . . formed or registered under the Companies Act, 1862. . . . to do any act not authorised by the memorandum and articles of association of such company . . . . the examiner shall report as to compliance and non-compliance with the following order : In case of a company formed or registered under the Companies Act, 1862. The bill, as introduced or proposed to be introduced into this House, shall be approved by a special resolution of the company. . . A copy of such special resolution .... shall be deposited in the Private Bill Office. Provided always, that if by the terms of such special resolution or consent, the bill, as introduced or proposed to be introduced into the House of Lords, shall have been approved or consented to, subject to such additions, alterations, and variations, as Parliament may think fit to make therein; then it shall not be necessary for the purposes of this order, to obtain any further approval or consent in respect of any provisions inserted in the bill in the House of Lords. Provided, nevertheless, that it shall be competent for the committee on the bill, if they think fit, having regard to the nature and effect of such provision, to . require any further evidence of the approval or consent of such provisions on the part of the shareholders or members of the company. 131. Where a bill is promoted by an incorporated company, shareholders of such company shall not be entitled to be heard before the committee against such bill, unless their interests, as affected thereby, shall be distinct from the general interests of such company. See also Standing Order 75 as to the right of a dissenting member to be heard before the examiner upon the question whether Standing Orders 63 and 65 have been complied with. The House of Lords has made similar standing orders, see further, supra, p. 110. Company may contract with directors. FORM XXVI. POWER FOR COMPANY TO CONTRACT WITH DIRECTORS. 1. The company may make contracts with any of the directors upon such terms as the directors shall think fit; and a director shall not, by reason of the fiduciary relation subsisting between him and the company, be accountable for any profit made by him in respect of any such contract, nor, subject to the following proviso, in respect of any other contract made with the company in the profits of which he participates or in which he is otherwise interested; provided that the fact of his being so interested therein, and the nature of his interest be fully and fairly disclosed by him at the meeting of the directors at which the contract is determined on, if his interest then exists, or, in any other case, at the first meeting of the directors after the acquisition of his interest. Forms. to vote where 2. No director shall vote [nor shall the managing director Director not exercise any discretion as between himself and the company] personally in respect of any contract or matter in which he is individually interested. interested otherwise than as a member. If desired, the above clauses can be inserted in the articles. Clause 1 will come, supra, p. 176, between Clauses 91 and 92; and Clause 2 supra, p. 181, between Clauses 105 and 106. If these clauses are inserted, subsection (e) of Clause 92, supra, p. 177, must be omitted. As a director stands in a fiduciary relation towards the company, he cannot, unless the articles otherwise provide, contract with the company. "Whether you look upon a director as a trustee or as an agent, he cannot take the benefit of a contract entered into between himself and the company, because he is not to make a profit in the case where he is both buyer and seller. This is the simplest principle. Being in a fiduciary position, and having therefore a duty to perform to what are commonly called his constituents, that is, the company and the shareholders, he is not entitled to say that he will perform that duty properly in a case where his self-interest would be opposed to the proper performance of his duty. That is an intelligible principle, and one well understood." Per Jessel, M.R., Albion, &c., Co. v. Martin, 1 Ch. Div. 580. Nor does it make any difference that the contract is open and above board as between the contracting director and his co-directors. Ibid. But a company may unquestionably waive the benefit of the rule. Imperial, &c., Association v. Coleman, 6 Ch. 568; L. R. 6 H. L. 190; Southall v. British Mutual, &c., Society, 6 Ch. 619; Black v. Mallalue, 7 W. R. 303; Adamson's Case, 18 Eq. 670; and it has now become very common to do so, and to insert clauses to the effect of the above. See also supra, p. 177. It may be convenient here to refer to the well settled rule, that an agent cannot, without the knowledge and consent of his principal, be allowed to make any profit out of the matter of his agency beyond his proper remuneration. This rule applies with peculiar stringency to the directors of joint-stock companies. Hay's Case, 10 Ch. 601. The rule is "not a technical or arbitrary rule. It is a rule founded upon the highest and truest principles of morality. No man can, in this Court, acting as agent, be allowed to put himself into a position in which his interest and his duty will conflict." Per Lord Cairns, L.C., Parker v. McKenna, 10 Ch. 118. The Court will not inquire whether the principal has lost or not lost by the acts of the agent. "All that the Court has to do is to examine whether a profit has been made by the agent without the knowledge of his principal in the course and execution of his agency. . . ." Per Lord Cairns, ibid. The rule is an inexorable rule, and must be applied inexorably by this Court, which is not entitled, in my judgment, to receive evidence or suggestion, or argument, as to whether the principal did or did not suffer any injury, in fact, by reason of the dealing of the agent; for the safety of mankind requires that no agent shall be able to put his principal Forms. Directors to have percent age on profits. Indemnity. to the danger of such an enquiry as that." Per James, L.J., ibid., p. 124. See the above cases and the following: Parker v. Lewis, 8 Ch. 1035; Ottoman Bank v. Farley, 17 W. R. 761 ; Carling's Case, 1 Ch. Div. 123; Morvah Consols, &c., Co., 2 Ch. Div. 1; Morrison v. Thompson, L. R. 9 Q. B. 480; Sir E. Pearson's Case, 4 Ch. Div. 222, since affirmed on appeal; Dunne v. English, 18 Eq. 524. FORM XXVII. REMUNERATION OF DIRECTORS. The following is a form sometimes used, see supra, p. 175. The directors shall receive, by way of remuneration, in each year the sum of -7., and such further sum as may be equal to 5 per cent. of the net profits of the company in that year, payable out of the surplus remaining after payment of the preferential dividend to the holders of A shares, and of a dividend of 7 per cent. per annum on the amount paid up on the ordinary shares, so far as such surplus will extend, and all such remuneration shall be divided so that there shall be given to the chairman of the directors — equal parts thereof, and to each of the other directors one equal part thereof. FORM XXVIII. INDEMNITY TO OFFICERS. 1. Every director, manager, secretary, and other officer or servant of the company, shall be indemnified by the company against, and it shall be the duty of the directors out of the funds of the company to pay, all costs, losses, and expenses which any such officer or servant may incur or become liable to by reason of any contract entered into, or act or deed done by him as such officer or servant, or in any way in the discharge of his duties; and the amount for which such indemnity is provided shall immediately attach as a lien on the property of the company and have priority as between the members over all other claims. The above clause is occasionally inserted. See as to the right to indemnity of directors and other agents, Lindley, 775; see also Story on Agency, 339, et seq. |