Usually, however, dividends of this kind are declared only when a corporation is liquidated, all its property perhaps having been exchanged for stock or bonds, or both, of the purchasing corporation. In this case the distribution is not, strictly speaking, a payment of dividends but is a distribution of assets, and the ordinary rule that dividends may be declared only from profits does not apply.

CHAPTER XXV.

DIVIDENDS.-(Continued.)

§ 250. Declaration of Dividends.

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"The Board of Directors may declare dividends from the surplus or from the net profits of the Company. The dates for the declaration of dividends upon the preferred stock and upon the common stock of the Company shall be the days by these By-laws fixed for the regular monthly meetings of the Board of Directors in the months of April, July, October and January in each year, on which days, the Board of Directors in its discretion. shall declare what, if any, dividends shall be declared upon the preferred stock and the common stock, or either of such stocks.

"The dividends upon the preferred stock, if declared, severally and respectively, shall be payable quarterly upon the thirtieth day of May, of August, of November and the last day of February in each year.

"The dividends upon the common stock, if declared, severally and respectively, shall be payable quarterly on the thirtieth day of June, of September, of December and of March in each year.

"If the date herein appointed for the payment of any dividend shall in any year fall upon a legal holiday, then the dividend payable on such date shall be paid on the next day not a legal holiday."1

In the smaller corporations the by-laws regulating dividends are much more general in their provisions, usually merely restating the common or statutory law on the subject, as in the following extract:—

1 By-Laws of the U. S. Steel Corporation, Art. VI, § 5, 'Dividends."

'Dividends shall be declared only from the surplus profits at such times as the Board shall direct, and no dividend shall be declared that will impair the capital of the Company."

Under this by-law, the directors have wide discretion and, provided no statutory provisions conflict, may reserve any profits they please for surplus or working capital, or may declare any legally available profits as dividends, and so long as the exercise of their discretion is honest, can neither be restrained nor compelled.

Statutory provisions prohibiting dividends that will impair the capital stock or that will render the corporation insolvent, are found in practically every state of the Union. It is but seldom that the statutes go further in respect to dividends.

The by-laws frequently regulate the declaration of dividends. In some cases they provide that a specified surplus fund shall be reserved before any dividends may be declared. In other cases they specify that after the reservation of a designated surplus, any remaining profits shall be declared as dividends. Occasionally the matter is reversed, the by-laws requiring that dividends to a specified amount shall be declared before any profits may be reserved as surplus. Such a by-law provision is, as a rule, obviously undesirable as it compels the declaration of dividends regardless of the business conditions which should control.

Usually before the date fixed for declaration of dividends, or, if no such date is fixed, at the time a dividend is contemplated, the treasurer is called upon for a statement showing the corporate profits available for the purpose. If, however, the corporation has ample surplus profits, or if the business is so prosperous as to obviously justify the proposed dividend, no statement is necessarily required, the directors merely declaring the dividend as a matter of course.

When the fact and the amount of the dividend have been decided upon, a formal resolution declaring it is adopted by the

directors. This resolution usually fixes specifically the amount of the dividend and states to whom and when it shall be paid. The amount is ordinarily expressed as a percentage upon.the par value of the stock, though sometimes as a fixed amount per share. The recipients must necessarily be stockholders of the company but are usually stockholders of a specified future date, and the time of payment is usually fixed at a still later future date.

Thus a semi-annual dividend declared by the Pennsylvania Railroad Company November 1st, provides for a payment of three and one-half per cent. upon the capital stock of the company, payable on and after November 30th, to stockholders as registered upon the books of the company at the close of business November 4th. In the notice of this dividend, the statement of the amount on each $50 share, i. e. $1.75 per share, is also included.

In this case the dividend is absolutely fixed and irrevocable on the first of November but is not actually effective or due until the thirtieth of November, and is to be then paid to those who were stockholders of record at the close of business on November 4th. Stock transferred before that date carries the dividend with it. Stock transferred after that date does not unless by express agreement, the right to the dividend having passed to the individual stockholders of record on November 4th.

The directors have full power to declare a dividend effective at any future date they please. They cannot, however, antedate it. Thus the directors could not on January 1st, 1908, legally declare a dividend payable to stockholders of record on the 15th of the preceding October.2 The power to do so would, it is obvious, open a wide door for injustice and fraud.

If the treasurer is a member of the board or is present at the board meeting, the passage of the resolution declaring the

2 Jones v. Terre Haute, etc. R. R., 57 N. Y. 196 (1874).

dividend is undoubtedly sufficient notice to him of the fact and he is then fully authorized to carry the resolution into effect.

. If the treasurer is not present at the board meeting, a verbal statement made to him by a member of the board or by the secretary of the company is a common, but, in itself, hardly sufficient notice of the board's action. A personal inspection of the resolution entered in the secretary's minutes is better, and, though informal, is sufficient. Written notice from the secretary of the passage of the resolution, with a copy of the resolution itself incorporated, is more formal and may, if he choose, be demanded by the treasurer. As soon as the treasurer has authoritative notice of the resolution, no matter how his knowledge is derived, he may proceed at once to the payment of the dividend in accordance with its terms.

The resolution declaring a dividend usually provides for the closing of the stock books to transfers of stock for a certain period before the dividend day, i. e., the day when the dividend is to be paid. This provision for closing the transfer books is usually and properly part of the charter or by-law requirements of the corporation. It is questionable whether the directors would have power to close the transfer books unless so authorized.

§ 251. Notice of Dividends.

The directors of a corporation have full power to fix the time and place of payment of dividends, if reasonable and in good faith, but they must give stockholders due notice.3

When dividend checks are not mailed, notice must be given the stockholders of the time and place at which dividends will be paid. These notices are sent out by the treasurer or the secretary, according to the regulations of the particular corporation. The officer sending the notices must be governed absolutely by the stock book, unless he has personal knowledge or has received formal notice of the fact that some particular

3 King v. Paterson, etc. R. R. Co., 22 N. J. L. 87 (1860).