Form 68.

Right to profits.

Declaration of dividends.

Restriction on amount of dividend.

Dividend to
be paid out of
profits only.

DIVIDENDS.

115. Subject to the rights of members entitled to shares issued upon special conditions, the profits of the company shall belong to the members in proportion to the amount paid up on the shares held by them respectively. Provided, nevertheless, that where money is paid up in advance of calls under Clause 20 hereof, upon the footing that the same shall carry interest, such money shall not, whilst carrying interest, confer a right to participate in profits.

This is the mode of dealing with profits now very commonly adopted, but where there are different classes of shares in the original capital the clause will be modified accordingly. See Forms 77 and 78, infra.

If desired, the clause can run thus: "in proportion to the nominal amount of the capital held by them respectively." But in any case it is desirable to deal with the matter specifically.

116. The company in general meeting may declare a dividend to be paid to the members according to their rights and interests in the profits.

Very commonly it is provided that "the directors may, with the sanction of the company in general meetings," declare dividends, but the general practice is for the meeting to declare the dividend, and it therefore seems better to frame the clause as above.

[116a. No larger dividend shall be declared than is recommended by the directors (but the company in general meeting may declare a smaller dividend).]

The above clause is commonly used, sometimes with, sometimes without the words in brackets.

117. No dividend shall be payable except out of the profits arising from the business of the company.

This clause is almost always inserted. It is not necessary, for the payment of dividends out of capital is in effect an illegal reduction of capital, unless effected under the Companies Acts, 1867 and 1877; but it is useful as a reminder.

The Court will, at the suit of any member of the company, prohibit the payment of dividend out of capital. Form 216, infra. McDougall v. Jersey, &c. Ry. Co., 2 H. & M. 528; 12 W. R. 1142; Bloram v. Metropolitan Ry. Co., 3 Ch. 337 ; but not at suit of a mere simple contract creditor. Mills v. Northern, &c., Co., 5 Ch. 621. If, however, a company have paid for things, properly chargeable to capital, out of revenue, they are entitled to recoup the revenue account, at a subsequent time, out of capital; and may, if necessary, raise fresh capital, under their borrowing powers, for that purpose. Mills v. Northern, &c. Co., ubi supra.

As to the mode in which a statement of profits is to be arrived at, see Lindley, 813; Stringer's case, 4 Ch. 475; Rance's case, 6 Ch. 104; Binney v. Ince Hall, &c., Co., 35 L. J. Ch. 363.

Where capital has been illegally paid to members, they will be compelled to repay the amount. Holmes v. Newcastle, &c., Co., 1 Ch. Div. 682.

Directors paying dividends out of capital may be compelled in a winding up to refund the whole amount. National Funds Ass. Co., 10 C. D. 118. See Form 547, infra. As a company cannot directly pay dividends out of capital, it cannot do so indirectly; e.g. by entering into a contract with another company, one of the terms of

which is, that the latter shall pay interest on the capital of the former. James v. Form 68. Eve, 6 H. L. 335.

[117a. The declaration of the directors as to the amount of the net What to be profits of the company shall be conclusive.]

This clause is common, and is found useful: it does not enable the directors to declare profits where in reality there are none.

deemed net profits.

118. The directors may from time to time pay to the members on Interim diviaccount of the next forthcoming dividend such interim dividends as in dends. their judgment the position of the company justifies.

The above clause is now very commonly inserted. It is, of course, liable to abuse.

deducted.

119. The directors may deduct from the dividends payable to any Debts may be member all such sums of money as may be due and payable by him to the company on account of calls, instalments, or otherwise.

[119a. Any general meeting declaring a dividend may resolve that the same, or any part thereof, shall be applied in paying up, pro tanto, the capital uncalled upon the shares held by the members to whom the same would otherwise be payable, and the directors shall give effect to such resolution accordingly; but any member whose shares are fully paid up shall be entitled to be paid his proportion of the dividend in cash.]

This clause is sometimes used.

[1196. A transfer of shares or stock shall not pass the right to any cash dividend declared thereon before the registration of the transfer.]

This probably only expresses what would otherwise be implied, but as between a vendor and purchaser of shares the purchaser is primâ facie entitled to all dividends declared after the contract is made. Black v. Homersham, 4 Ex. D. 24, and accordingly the vendor must account for the same. Of course the above clause does not prevent an assignment of the right to the dividend.

or shares of

[119c. The directors may retain the dividends payable upon shares or Power to restock in respect of which any person is, under Clause 30 hereof, entitled tain dividends to become a member, or which any person under that clause is entitled infant, to transfer, until such person shall become a member in respect of such lunatic, &c. shares or stock, or shall duly transfer the same.]

This clause is occasionally inserted, and may be found convenient for the purpose of ridding the register when desirable of the name of a deceased or incapacitated member. It is, of course, optional.

120. In case several persons are registered as the joint holders of any Dividend to share or stock, any one of such persons may give effectual receipts for joint holders. all dividends and payments on account of dividends in respect of such

share or stock.

121. Notice of the declaration of any dividend, whether interim or Notice of divi

dend.

Form 68. otherwise, shall be given by advertisement, and also to the holders of registered shares and registered stock in manner hereinafter provided.

Unclaimed dividends.

Accounts to be kept.

Where to be kept. Inspection by members.

Annual statement and

balance-sheet.

Annual report of directors.

122. All dividends unclaimed for one year after having been declared may be invested or otherwise made use of by the directors for the benefit of the company until claimed, and all dividends unclaimed for five years after having been declared may be forfeited by the directors for the benefit of the company. No dividend shall bear interest as against the company.

ACCOUNTS.

123. The directors shall cause true accounts to be kept of the sums of money received and expended by the company, and the matters in respect of which such receipt and expenditure takes place, and of the assets, credits, and liabilities of the company.

124. The books of account shall be kept at the registered office of the company, or at such other place or places as the directors think fit.

125. The directors shall from time to time determine whether and to what extent, and at what times and places, and under what conditions or regulations, the accounts and books of the company, or any of them, shall be open to the inspection of the members; and no member shall have any right of inspecting any account or book or document of the company, except as conferred by statute or authorised by the directors, or by a resolution of the company in general meeting.

The above clause is not uncommonly used. Few companies allow members free access to the books.

Where a right of inspection is given as regards "the books, wherein the proceedings of the company are recorded," a member has no right to inspect the minute book of proceedings of directors. Reg. v. Mariquita, &c., Co., 1 E. & E. 289. See also Metropolitan, &c., Bank, Ex parte Davis, 16 W. R. 668.

A right of inspection given by the articles ceases when the voluntary winding up begins. Yorkshire, &c., Co., 9 Eq. 650; 18 W. R. 541.

Where a winding-up order has been made, s. 156 of the Act applies, under which the Court has express power to permit inspection by creditors or contributories. See Buckley, 292.

Table A. provides as follows:

"The books of the company shall be kept at the registered office of the company, and, subject to any reasonable restrictions as to time and manner of inspecting the same, that may be imposed by the company in general meeting, shall be open to the inspection of the members during the hours of business."

See also Table A., Clause 78.

126. At the ordinary meeting in every year the directors shall lay before the company a statement of the income and expenditure, and a balance-sheet, containing a summary of the property and liabilities of the company made up to a date not more than four months before the meeting, from the time when the last preceding statement and balancesheet were made, or, in the case of the first statement and balance-sheet, from the incorporation of the company.

127. Every such statement shall be accompanied by a report of the directors as to the state and condition of the company, and as to the

amount which they recommend to be paid out of the profits by way of Form 68. dividend or bonus to the members, and the amount (if any) which they propose to carry to the reserve fund, according to the provisions in that behalf hereinbefore contained; and the statement, report, and balancesheet shall be signed by two directors, and countersigned by the secretary.

By 24 & 25 Vict. c. 96, s. 84, directors keeping fraudulent accounts, or publishing fraudulent statements, are guilty of a misdemeanour.

members.

128. A printed copy of such balance-sheet and report shall, seven Copy to be days previously to the meeting, be served on the holders of registered sent to shares and registered stock in the manner in which notices are hereinafter directed to be served.

AUDIT.

129. Once at least in every year, the accounts of the company shall Accounts to be audited be examined, and the correctness of the statement and balance-sheet annually. ascertained by one or more auditor or auditors.

and remunera

130. The first auditor or auditors shall be appointed by the directors; Appointment subsequent auditors shall be appointed by the company at the ordinary tion of meeting in each year. The remuneration of the auditors shall be fixed auditors. by the company in general meeting. Any auditor quitting office shall be eligible for re-election.

Sometimes the first auditors are appointed by the articles.

131. If one auditor only is appointed, all the provisions herein Provision for contained relating to auditors shall apply to him.

case of single auditor.

132. The auditors may be members of the company, but no person Who ineligible shall be eligible as an auditor who is interested, otherwise than as a as auditors. member of the company, in any transaction thereof, and no director or other officer shall be eligible during his continuance in office.

133. If any casual vacancy occurs in the office of auditor, the directors Casual shall forthwith fill up the same.

This is the usual clause. Compare with Table A. Clauses 90 and 91.

vacancy.

report on

134. The auditors shall be supplied with copies of the statement of Auditors to accounts and balance-sheet intended to be laid before the company in annual stategeneral meeting seven days at least before the meeting to which the ment and same are to be submitted, and it shall be their duty to examine the same with the accounts and vouchers relating thereto, and to report to the company in general meeting thereon.

balance-sheet.

135. The auditors shall at all reasonable times have access to the Inspection of books by books and accounts of the company, and they may in relation thereto auditors. examine the directors or other officers of the company.

[135a. Every account of the directors, when audited and approved by When aca general meeting, shall be conclusive, except as regards any error dis- counts to be

Form 68. covered therein within three months next after the approval thereof. Whenever any such error is discovered within that period, the account shall forthwith be corrected and thenceforth shall be conclusive.]

deemed finally settled.

How notices

to be served on members.

How notices to be given to company.

Authentica

tion of notices by company.

Address for service of

members resident abroad.

Holder of

share warrant not entitled

to notice.

This clause is sometimes inserted.

NOTICES.

136. A notice may be served by the company upon any member whose registered place of address is in the United Kingdom, either personally or by sending it through the post in a pre-paid letter, addressed to such member at his registered place of address.

Notices have to be given to members in the following cases: call, Clause 18; before forfeiture, Clause 33; after forfeiture, Clause 35 a; general meetings, Clause 64; dividends, Clause 121; accounts, Clause 128.

The register of members, to be kept pursuant to Section 25 of the Act, is to contain (inter alia) the addresses of the members.

As to notices to the company, the Act provides :

Section 62.-Any summons, notice, order, or other document, required to be served upon the company, may be served by leaving the same, or sending it through the post in a pre-paid letter, addressed to the company, at their registered office.

Section 63.--Any document to be served by post on the company, shall be posted in such time as to admit of its being delivered in the due course of delivery, within the period (if any) prescribed for the service thereof; and in proving service of such document, it shall be sufficient to prove that such document was properly directed, and that it was put as a pre-paid letter into the Post-office.

Section 64.-Any summons, notice, order, or proceeding, requiring authentication by the company, may be signed by any director, secretary, or other authorised officer of the company, and need not be under the common seal of the company, and the same may be in writing or in print, or partly in writing and partly in print. See also s. 41 of the Act.

The above ss. 62-64, so far as they relate to notices, are sometimes inserted as clauses in the articles.

137. Each holder of registered shares or registered stock, whose registered place of address is not in the United Kingdom, shall, from time to time, notify in writing to the company some place in England to be called his address for service, and any notice may be served by the company upon such member by sending it through the post in a prepaid letter addressed to him at his address for service. Until such notification shall have been given, the office shall be deemed to be the address for service of such member.

It is generally deemed expedient to make special provision as to the service of notices on members resident abroad.

According, however, to the opinion of Malins, V.-C., such members are not entitled to notice. "It seems to me that the Act has reference only to shareholders who can be reached by the ordinary English post." Union Hill Silver Co., 22 L. T. 400. See also Grant on Corporations, 156.

138. The holder of a share warrant shall not be entitled in respect thereof to notice of any general meeting of the company.

The holder of a share warrant is generally deprived of the right to notice of