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That the existing articles of association be rescinded, and that the Form 105. following regulations be substituted therefor:

1. In the interpretation, &c.

[Here will follow the new articles.]

It is by no means uncommon to substitute entirely new articles of association, especially when a company limited by shares, having been registered without articles, is governed by Table A. Care, however, must be taken not to insert any clause not warranted by the memoran lum and original regulations, e.g., if there was originally no power to create preference shares, the power cannot be taken by special resolution See infra.

New articles adopted.

RESOLUTIONS TO INCREASE CAPITAL.

The following is a simple resolution to increase :

That the capital of the company be increased to 50,000l., by the Form 106 creation of 2,000 new shares of 57. each.

The power to increase the capital is generally made exerciseable by the company in general meeting, i.e., by a simple resolution, or by special or extraordinary resolution, or by the company simply. In the last case the directors can generally exercise the power under their general powers, see p. 128, supra.

See further as to increase of capital and creation of preference shares, supra, p. 153, et seq.

Whether the capital be increased by resolution of the company, or by resolution of the directors, notice to the registrar must be given within fifteen days from the date of the passing of the resolution, or in default the company and every director and manager will be liable to a penalty of 57. per day. See further, infra, p. 209, s. 34 of the Act.

Increase of capital.

As to the Issue of Preference Shares.

Power to increase capital can, as already mentioned [supra, p. 53], 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 s. 12 of the Act (see supra, p. 53,) 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 ; Pulbrook v. New Civil Service Co., 26 W. R. 11.

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

Form 106. capital clause of the memorandum has, to a considerable extent, been abandoned.

See supra, p. 54.

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. Earl, 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 both as regards dividends and in a winding up. Harrison v. Mexican Ry: 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.

Form 107.

Preference shares.

The following are some examples of resolutions creating preference shares of different kinds :

That the capital of the company be increased to 25,0007. by the creation of 2,000 new shares of 57. each, to be called preference shares and to confer on the holders thereof the right to a fixed cumulative preferential dividend at the rate of 6 per cent. per annum on the amount for the time being paid up on such shares [which dividend shall be payable half-yearly on the - day of and day of ―].

Form 108.

Another form.

1. That the capital be increased to 30,0007. by the creation of 10,000 new shares of 11. each.

2. That the new shares be called preference shares, and that the holders thereof be entitled to a preferential dividend, at the rate of 5l. per cent. per annum, payable out of the profits of each year, without any right in case of deficiency to resort to the profits of subsequent years.

3. That in the event of the company being wound up, the holders of Form 108. the said preference shares shall be entitled to have the surplus assets of the company applied in the first place in repaying to them the amount paid up on the preference shares held by them respectively, but that the residue of such surplus assets shall belong to and be divided among the other members of the company.

Form 109.

The following may be used instead of Clause 2 aboveThat the new shares shall be called preference shares, and that the variation. holders thereof shall be entitled to be paid out of the profit of each year a preferential dividend for such year at the rate of 51. per cent.

It is sometimes preferred because it does not expressly call attention to the contingency of the profits being deficient. In either case the dividend will be noncumulative. See supra, p. 154.

1. That the capital of the company be increased to 100,0007. by the Form 110. creation of 3,000 new shares of 107. each.

A. and B.

2. That the new shares be called A. shares, and that the holders thereof shares. be entitled to a cumulative preferential dividend, at the rate of 6 per cent. per annum on the nominal amount of such shares, which dividend shall be payable half-yearly, on the

of

day of

and

day

3. That the company shall be entitled to create further new shares to rank in all respects pari passu with the said A. shares, but so that the aggregate amount of the A. shares for the time being issued, and of such further new shares, shall not at any one time exceed one-half the amount of the paid-up capital of the company.

Where it is desired to reserve such a power as above, express provision should be made accordingly, otherwise the company will not be permitted [unless indeed the articles contain a clause as above, p. 110, Clause 48,] to derogate from the rights of the holders of the preference shares. Thus in the recent case of the Argentine Tramways Co., Limited, the capital was divided into preferred and deferred shares. The latter (100,0007.) had been issued as paid-up to the vendor. Arrangements were made by the directors for the surrender of the deferred shares in consideration of 20,0007. new preferred shares to rank in all respects equally with the original preferred shares. Pursuant to this arrangement a resolution for the creation of the new shares was unanimously passed at an extraordinary meeting of the company, and a further meeting for its confirmation was called. Meantime the action of Harper v. Paget was brought by one of the holders of original preferred on behalf of himself and all other the preferred shareholders in the company against Lord Alfred Paget and other directors and the company, seeking for an injunction to prevent the carrying of the resolutions into effect. And the injunc tion was granted. See Form 214, infra.

Sometimes it is considered better to give an implied power to modify the rights attached to the holders of preference shares, e.g., "No new share entitled to rank pari passu with or to any preference over the said A. shares shall [before the day of -] be issued by the company without the consent in writing of the holders of two-thirds of the A. shares for the tim being outstanding."

Form 110.

4. That the A. shares shall not confer any right of voting at any general meeting of the company, nor shall they qualify any person to be a director of the company.

5. That in the event of the company being wound up, the surplus assets thereof shall be applied in the first place in repaying to the holders of the A. shares, and of any other shares entitled to rank pari passu with them, the full amount paid up thereon, and that, subject as aforesaid, such surplus assets shall belong to and be divided among the other members of the company.

6. That the directors be and they are hereby authorised to issue the said 4,000 shares to such persons, and to be paid for by such instalments or otherwise as they think fit, and without being bound to offer the same or any of them to existing members of the company.

Form 111.

Guaranteed preference shares.

1. That the capital, &c.

2. That the said new shares be called "new preference guaranteed shares," and that the holders thereof be entitled to a cumulative preferential dividend at the rate of 12 per cent. per annum, on the amount for the time being paid up on such shares, such dividend to be payable in priority to all other dividends except those payable to the holders of the existing preference shares.

3. That in the event of the company being wound up [supra, p. 191, mutatis mutandis].

Form 112.

Preference shares in

exchange for debentures.

1. That the capital, &c.

2. That the said shares be called preference shares, and that the holders, &c.

3. That every holder of a debenture or debentures of the company shall be entitled upon the surrender thereof to the directors, before the day of next, to have allotted to him so many of the said preference shares as shall be equal, as nearly as may be, in nominal amount to the aggregate amount of the principal monies and interest due to him in respect of such debenture or debentures.

4. That the amount so due shall be credited as paid up on the shares so allotted.

5. That any of the said preference shares not allotted before the day of next, may be disposed of in such manner as the directors shall think fit.

Form 113.

Sometimes a power to convert preference into ordinary shares is given.

Thus :

Any holder of such shares may give the company six calendar months'

notice in writing of his desire to convert the preference shares held by Form 113. him, or any part thereof, into ordinary shares, and upon the expiration of such notice the same shall be deemed to be converted accordingly, and shall thenceforth confer the same rights and privileges as the other ordinary shares in the company's capital.

CONVERSION OF SHARES INTO STOCK.

That the 10,000 shares in the capital of the company which have been Form 114. issued and fully paid up be converted into stock.

By s. 12 of the Act of 1862, any company limited by shares may so far modify the conditions contained in its memorandum of association, if authorised so to do by its regulations as originally framed or as altered by special resolution as (inter alia) to convert its paid-up shares into stock.

The articles generally empower a company to convert any of its paid-up shares into stock. Sometimes the sanction of the company in general meeting or by special or extraordinary resolution is required, but where this is not the case the directors can generally exercise the power under such a clause as 113, supra, p. 128. As to notice of conversion to be given to Registrar of Joint-Stock Companies, see infra, p. 209.

Stock.

That the whole of the preference shares in the capital of the company Form 115. be converted into stock, to be called preference stock.

If the articles do not contain proper provisions providing for the event of shares being converted into stock, it will be necessary to alter them by inserting the usual clauses. See supra, p. 109.

Another.

CONSOLIDATION OF SHARES.

1. That the shares in the capital of the company be consolidated in Form 116. such manner that every five of the existing shares shall constitute one 51.

share, upon which the sum of 57. shall be credited as having been paid

up.

2. That the existing certificates of shares be called in by the directors and cancelled, and that new certificates be issued, subject to the provisions contained in clauses of the articles of association.

Section 12 of the Act of 1862 permits any company limited by shares so far to modify the conditions contained in its memorandum of association, if authorised to do so by its regulations as originally framed, or as altered by special resolution in manner hereinafter mentioned, as to (inter alia) consolidate and divide its capital into shares of larger amount than its existing shares. It is usual to insert the necessary authority in the articles, (see supra, p. 111,) although it is but seldom exercised. Even though not inserted, a single special resolution is sufficient.

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