Form 73. These clauses are usually entitled "Preference and Deferred Shares," or as the case may be, and generally commence with a statement as to the capital, e.g., “Of the capital mentioned in the memorandum of association, 10,000 shares shall be called preference shares, and 10,000 shall be called deferred shares," and then proceed to define the rights of the holders. But where the division is effected by the memorandum of association the clauses defining the rights of the shareholders can be intituled Appropriation of Profits," and inserted near the beginning of the articles, or just before the dividend clauses. As to the form of the dividend clause where there are preference shares, &c., see supra, p. 134, note to Clause 115. In defining the rights of the holders of preference shares in regard to dividends, it is necessary to ascertain whether the dividend payable to them is to be noncumulative, i.e., contingent on the profits of each year being sufficient, or cumulative, i.c., so that the deficiency of any one year is to be made up out of the profits of subsequent years. Prima facie where one class of shares is to carry a dividend at a fixed rate in preference to another class, the dividend will be cumulative, and therefore payable out of the profits whenever accruing. Thus in Webb v. Earle, 20 Eq. 557, preference shares had been created with a preferential dividend of 107. per cent. per annum payable half-yearly, and it was held, that if the profits of any year were insufficient to pay the dividend in full to the preference shareholders, the deficiency ought to be made good out of subsequent profits. See also Henry v. Great Northern Ry. Co., 5 De G. & J. 606; 6 W. R. 87; Matthews v. Great Northern Ry. Co., 28 L. J. Ch. 375 ; 7 W. R. 233; and Forms 214, 215, infra, Sometimes the word "cumulative" is used, e.g., a "cumulative preferential dividend of 107. per cent. per annum," and there can be little doubt that the addition of that word precludes any question as to the right of the holders of preference shares to be paid arrears of dividends out of profits whenever accruing. See Webb v. Earle, ubi supra. Not uncommonly where a dividend is intended to be cumulative it is expressly provided that the holders of the shares shall have "a right to resort to the profits of subsequent years to make up any deficiency in the dividend of preceding years." See infra, Form 76. If a dividend is intended to be non-cumulative the clause must either be so framed that there is no room to contend that it is cumulative, infra, Form 74, or it may be expressly provided that there shall be no right, in case of deficiency, to resort to subsequent profits. See infra, Form 76. As to giving a preference in the distribution of assets, see infra, notes to last three Forms of "Miscellaneous Clauses." Form 74. Preference and 1. Of the shares mentioned in the memorandum of association of the company, 10,000 shall be called preference shares, and 10,000 shall be called ordinary shares. 2. The holders of the preference shares shall be entitled to receive out of the profits of each year a preferential dividend for such year at the rate of 6 per cent. per annum on the amount for the time being, paid up on the preference shares held by them respectively. 3. The surplus profits in each year shall belong to the holders of the ordinary shares. Sometimes where preference shares are to carry a non-cumulative dividend it is thought better to frame the clause as above rather than expressly to provide that there shall be no claim for arrears in case of deficiency in the profits of any one year. Guaranteed preference and shares. 1. The holders of the guaranteed preference shares shall be entitled to Form 75. a cumulative preferential dividend of 8 per cent. per annum on the nominal amount of the preference shares held by them respectively. 2. Subject to the rights of the holders of the guaranteed preference ordinary shares, the holders of the ordinary shares shall be entitled to be paid, out of the surplus profits in each year, a dividend at the rate of 10 per cent. per annum for that year on the amount credited as paid up on the ordinary shares held by them respectively. This, it will be observed, is a non-cumulative dividend. 3. The residue of the surplus profits in each year shall belong to and be divided among the members in proportion to the number of shares held by them respectively. day of 18-, the dividends Contingent of preference. 4. If at any time before the paid to the holders of the guaranteed preference shares in respect thereof termination (whether the same shall have been paid out of the profits of the company, or under the said agreement of the day of), shall amount in the aggregate to 80 per cent. on the nominal amount thereof, then, and in such case, the preference hereinbefore given to such shares shall cease to exist, and thenceforth the guaranteed preference and ordinary shares shall rank pari passu for dividend. It is by no means uncommon to insert such a clause as above. 1. Until the 1st day of September, 1885, the holders of A shares shall Form 76. be entitled to a preferential dividend of 6 per cent. per annum on the A and B amount, for the time being, paid up on the A shares held by them shares. respectively [with the right to resort to the profits of subsequent years to make up any deficiency in the dividends of preceding years], and the residue of the profits shall belong to the holders of the B shares. Or the word "cumulative" may be inserted before the word "preferential," and the words in brackets omitted. See supra, p. 154. 2. From and after the 1st day of September, 1885, the preference hereby given to the holders of the A shares shall determine, and thenceforth the holders of the A shares and of the B shares shall rank pari passu for dividends. As already mentioned, (supra, p. 154,) the provisions as to payment of preferen- Form 77. tial dividends are sometimes inserted in a clause introduced in that part of the articles which relates to the payment of dividends. The two following clauses are Clause proexamples: viding for appropriation 1. The net profits of the company in each year shall be appropriated of profits. in order of priority and manner following: Form 77. (1.) In paying to the holders of the A shares a cumulative preferential dividend at the rate of 10 per cent. per annum on the A shares held by them respectively. (2.) In paying to the holders of the ordinary shares a dividend at the rate of 8 per cent. per annum for such year on the amount, for the time being, paid up on the ordinary shares held by them respectively. (3.) In paying to the directors a sum equal to 5 per cent. on the net profits of the year [after deducting the amount paid to the holders of A shares in that year.] (4.) In paying to the holders of the founder's shares a sum equal to 10 per cent. on the said net profits [after making such deduction as aforesaid.] (5.) Any surplus shall be divided among the holders of the ordinary shares. Form 78. Another form. 2. The net profits of the company in each year shall be applied as follows: 1st. In paying to the holders of A shares a preferential dividend for such year at the rate of 7 per cent. on the amount, for the time being, paid up on the A shares held by them respectively. 2ndly. In paying a dividend for such year at the rate of 6 per cent. per annum on the B shares. 3rdly. Of the surplus profits 10 per cent. shall be paid to the directors, 10 per cent. shall be paid to the general manager of the company, 20 per cent. shall be carried to the sinking fund to be established pursuant to clause hereof, and 60 per cent. shall be dealt with as the company in general meeting shall direct. It will be observed that the interest taken by the directors is widely different under the two forms above given. In 77 they may become entitled to the whole of the surplus profits in some years after payin the dividends 1 and 2. In 78 they can never get more than one-tenth part of the surplus profits. Form 79. Power to acquire business. 1. The directors may purchase or acquire upon such terms and under such stipulations as to guarantee or otherwise, as may be agreed upon, the business and goodwill of the said Messrs. as the same now stands. The above was the authority given to the directors of Overend, Gurney, & Co., Limited. "There is the largest possible power given to these gentlemen to buy this, which was, in itself, a speculative business, and they are to do it entirely in such manner as they may think expedient." Per Lord Hatherley, Overend, &c., v. Gurney, 4 Ch. 715. It was held that the above power authorised the directors to purchase the business and to undertake the liabilities thereof. "I have no doubt whatever," said Lord Chelmsford, "that the words 'as the same now stands' must mean that the business is to be taken over with its credits and liabilities, that is, as the Form 79. business appeared in the books of the company." S. C., 5 H. L. 505. However it is usual in empowering directors to acquire a business, expressly to refer to the liabilities. The directors may purchase, or otherwise acquire, and undertake, Form 80. upon such terms and conditions as they think fit, the business of a & Co., at business. "Another power now carried on by Messrs. and all, or any part of to acquire the property and liabilities of the said firm in connection with the said business. The directors may, upon such terms and conditions as they think fit, Form 81. acquire all or any part of the land and buildings known as the Another power Works, at, and of the plant, machinery, fixtures, stock-in-trade, to acquire chattels, and effects, rights and privileges, in or about the said works or business. otherwise belonging to in connection with the business carried on there by him, and undertake all or any of the contracts and liabilities of TRANSFER OF SHARES. 1. No share shall be transferred to a stranger so long as any member Form 82. is willing to purchase the same at the fair value. Restriction on company. 2. In order to ascertain whether any member is willing to purchase a transfer in a share offered for sale, the seller, whether entitled in his own right or private otherwise, shall give notice to the secretary that he desires to sell the share, and such notice shall constitute the secretary his agent to contract with any member for the sale of the share at the fair value to be determined as mentioned below. If the secretary fails, for the space of ten 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 through 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. In the case of a "private" company [supra, p. 32], it is extremely common to insert clauses giving to the members a right of pre-emption in respect of the shares which any member desires to part with. The drafting of such clauses is a matter of considerable difficulty. Sometimes it is desired to give the company the right of pre-emption, but this cannot be done in the case of a company limited by shares. See supra, p. 69. Sometimes it is provided that the company in general meeting or the auditors shall periodically fix a price, and that the members shall have a Form 82. right of pre-emption at such price. Another plan is to make the price depend on the amount paid up or the dividends declared during a limited period. Occasionally the price is to be the fair value to be fixed in the first instance by the retiring members or the directors, and any dispute to be referred to arbitration. But all these schemes are open to some objections. Form 83. Another. As to the mode in which the right of pre-emption is to be exercised, sometimes it is left to the company in general meeting from time to time to make rules, sometimes it is provided that the share shall be offered to the members in proportion to the shares already held by them. Sometimes that the order in which they shall be offered is to be settled by ballot, and sometimes that it shall be in accordance with the order in which names are entered in an application book. 1. No share shall, save as provided by Clause 9 hereof, be transferred to a stranger so long as any member is willing to purchase the same at the prescribed price. 2. In order to ascertain whether any member is willing to purchase a share, the person, whether a member of the company or not, proposing to transfer the same (hereinafter called the retiring member), shall give notice in writing to the company that he desires to transfer the same; and such notice shall constitute the company his agent for the sale of the share to any member of the company at the prescribed price. 3. If the company shall within the space of 28 days after such notice find a member desiring to purchase the share (hereinafter called the purchasing member), and shall give notice thereof to the retiring member, he shall be bound, at such time within [14] days afterwards as the company shall appoint, upon payment of the prescribed price, to transfer the share to the purchasing member. 4. If in any case the retiring member after having become bound as aforesaid, makes default in transferring the share, the company may receive the purchase money, and shall thereupon cause the name of the purchasing member to be entered in the register as the holder of the share, and shall hold the purchase money in trust for the retiring member, his executors, administrators, or assigns. The receipt of the company for the purchase money shall be a good discharge to the purchasing member, and he shall not be bound to see to the application thereof, and after the name of the purchasing member has been entered in the register in purported exercise of the aforesaid power, the validity of the proceedings shall not be questioned by any person. 5. If within the space of 28 days after being served with any such notice as aforesaid, the company shall not find a member desiring to purchase the same, and shall not give notice thereof in manner aforesaid, the retiring member shall at any time within six calendar months afterwards be at liberty, subject to Clause 9 hereof, to transfer the share to any person and at any price. 6. By the expression "the prescribed price" used in these presents is meant a sum equal to the amount which at the time when the retiring member gives notice to the company pursuant to Clause 2 hereof, stands credited in the books of the company as having been paid up on the share which he proposes to transfer. Provided that if according to the |