By-Laws. Questions. 1. What is a By-Law? 2. What is the difference between a by-law and a resolution? 3. Are the stockholders of a corporation obliged to have a knowledge of its by-laws? 4. By whom are the by-laws of a corporation made? 5. By whom are by-laws amended and repealed? 6. For what purpose are the by-laws made? 7. With what must the by-laws comply? 8. When are by-laws void? transfer of shares? upon shares? 9. Is a by-law valid to restrain 10. Can a by-law create liens 11. Is a by-law valid that will release a shareholder from his obligation to pay for his shares? 12. Can shares be forfeited by the by-laws? 13. Can a by-law take away the power of stockholders to elect directors? 14. Can a by-law confer the right to vote by proxy? 15. Is a by-law valid, requiring shares to be transferred only on the books of the company? By-Laws. Answers. 1. A by-law is the law or rules of a corporation for the government of its members and officers, in the management of its affairs. 2. A resolution is directed to the attainment of a particular object in a particular case, while a by-law governs. A resolution is not necessarily a by-law, but a by-law may be in the form of a resolution. 3. Yes, for they will be held by them. Every stockholder will find it greatly to his own advantage to have a full knowledge of the corporation's charter, constitution and by-laws. 4. In the absence of a statute otherwise providing, by-laws can be made only by the corporation at large, that is to say, that they can be made only by a majority of the shareholders, and not by the directors, trustees or managing officers. 5. By-laws can be amended and repealed by the shareholders only. 6. By-laws are made for the management of the corporation's property, and regulation of its affairs, as the transfer and forfeiture of stock, duties and compensation of officers, when meetings may be held, when elections shall be held, how the voting shall be done, the mode of voting by proxy, and every other detail not inconsistent with the statutes. 7. By-laws must comply with the charter and must not be contrary to law. Any by-law that enlarges or restricts the rights and powers conferred by the charter or governing statute, is void. 8. By-laws are void if they have not been enacted by the constituent body, they must be reasonable, they must not be contrary to law, to good morals or to public policy. 9. A by-law which merely regulates transfers of stock, or even restrains them, so far as necessary to secure the rights of the corporation is valid, but if it should absolutely restrain the right of a shareholder to dispose of and transfer his shares it would be void, such would be against the law of the land, it would be against common right. 10. A corporation can enact a by-law creating a lien on the shares of a stockholder, for debts due by him to the corporation, but such lien is not valid as against innocent purchasers for value. 11. Under some conditions such a by-law has been held valid, but it must be remembered that the capital stock of a corporation is a trust fund for the security of its creditors, and they will be held for their unpaid subscriptions. 12. A corporation may declare a forfeiture of its stock for the non-payment of calls or assessments, provided the power is expressly given by its charter. 13. If the charter gives the stockholders the power to elect directors, the corporation cannot, by a bylaw, take away this power. 14. If the charter gives the authority to enact such a by-law, it will be valid, but the American courts differ in opinion as to a corporation having the right to enact such by-law in the absence of express statutory authority. 15. Yes, if such were not the case, how is the cor poration to know who its members are, and who is en titled to dividends. Capital Stock. Questions. 1. Is the capital stock of a corporation a trust fund for creditors? 2. Is capital stock a liability of the corporation? 3. Have the directors power to increase the capital stock of a corporation? 4. Has a corporation the authority to increase or diminish its capital stock? 5. How can a corporation increase its capital stock? 6. What are the provisions respecting an increase of capital stock? 7. What is the effect of an increase of capital stock on the liability of shareholders? 8. Can a corporation increase its capital stock by issuing preferred shares? 9. Has a corporation power to rescind a vote to increase its capital stock? 10. What are the restrictions against a fictitious increase of capital? 11. What is the liability of shareholders for in creasing the capital stock without filing a new certificate? 12. How may a corporation reduce its capital stock? 13. How does a reduction of capital affect the shareholders ? 14. What are the rights of creditors respecting a reduction of capital? 15. Can common stock be reduced without reducing the preferred stock? 16. What is the effect of a reduction of capital upon the liability of shareholders? 17. Can a corporation "Water" its capital stock? 18. Is a scrip dividend legitimate? 19. Have preferred shareholders a right to participate with the common shareholders in any surplus after receiving their preferred dividend? 1. The Capital Stock Answers. capital stock of a corporation which the members have subscribed for whether paid or not, and the full paid in capital is, in courts of equity, considered as a trust fund for its creditors, and is not to be divided among themselves until all creditors are paid. This is one reason why dividends must be paid out of net profits. 2. The capital stock of a corporation is not a debt due the stockholders to the corporation, but such stock represents a liability of the corporation, to the stockholders. 3. The capital stock of a corporation cannot be increased except in the manner expressly authorized by the charter or articles of incorporation. The directors cannot do so, without the consent of the shareholders. 4. Only when expressly authorized by the charter or articles of incorporation. 5. When the share capital of a corporation has been fixed by its charter or by statute, the directors nor the corporation at large have no authority to increase or decrease it, unless the power is given in the charter. If the power is not given, the directions of the statutes must be followed. 6. As the provisions differ in the different states, the statutes of your own state would have to be consulted. It would require too much space to give them here 7. If a corporation increases its capital stock, the general effect upon the liability of shareholders is the same as in the case of an original subscription or purchase. If the shares are paid for in money or money's worth, the shareholders who receive them, cannot be made liable to creditors, except under a statute imposing individual liability upon the shareholders. If the shares have not been paid for, the shareholders are liable to pay for them when called upon to do so by the creditors of the corporation. 8. It can, provided it has authority to do so in the charter. 9. The best authority says a corporation has the power to rescind a vote to increase its capital stock. 10. No corporation shall issue stock or bonds ex cept for money paid, labor done, or property actually received, and all fictitious increase of stock or indebtedness shall be void. 11. Where a corporation has been organized under a special charter, and proceeds to increase its capital stock under a general law, the subscribers to the increase of stock will become individually liable for the subsequent debts of the company, to the full extent of the amount subscribed by them respectively, provided there is a failure to pay in the full amount of the increased capital, and to file a certificate thereof as required by the general law. 12. The capital stock of a corporation can be reduced only when authorized by law and in the manner prescribed by law. 13. When the capital stock of a corporation is reduced, the general rule is, that, it is done pro rata among the shareholders of each class of shares. 14. A corporation cannot reduce its capital and leave its debts unpaid or unprovided for. 15. Yes, if the corporation has provided for such reductions by proper resolution in accordance with the statutes. 16. A reduction of capital cannot take the form of distributing the assests of the corporation to the stock holders without retaining enough in hand to answer for its secured and unsecured debts. 17. No. 18. A corporation can issue additional shares of stock to represent its surplus profits and to divide such stock pro rata among its existing shareholders, provided there is nothing in the statutes restraining such action. 19. It has been held, that when the preferred stock has received its dividend, the common stock is entitled to receive the same, provided it shall have been earned, and if there be any surplus beyond that, the two kinds of stock shall share it equally. D. A. KEISTER & Co. PUBLIC ACCOUNTANTS AND AUDITORS. 88 WALL STREET, NEW YORK. |