SHARES

The letters patent or supplementary letters may provide for shares of more than one class and for any preferred, deferred, or other special rights and conditions. If any class of shares has preferred rights as to dividend, the letters patent or supplementary letters may authorize their issuance, from time to time, in one or more series, and may authorize the directors to fix before issuance, the designation, rights and conditions attaching to the shares of each series of such class; provided that the shares of all series of the same class carrying voting rights do not carry the right to more than one vote for each share, and when any fixed cumulative dividends or amounts payable on a return of capital are not paid in full, the shares of all series of the same class participate ratably in respect of such dividends including accumulations; no shares of any series of such class may be issued unless and until supplementary letters have been issued setting forth the conditions and limitations attaching to the shares except in the case of the first series if the designation and conditions have been set forth in previous letters patent; upon filing with the Secretary of State a certified copy of a resolution of the directors, the company may apply for the necessary supplementary letters patent. (Subsec. 1 of 12.) In the absence of other provisions in the letters patent or bylaws, the issue and allotment of no-par shares may be made from time to time for such consideration as may be fixed by the board of directors; in fixing the consideration, the board may provide in the contract of subscription that the consideration received shall be deemed to be capital, excepting a part, if any, not exceeding 25 percent thereof, which may be set aside as distributable surplus. Where a company acquires a going concern the directors are allowed to set aside some further part of the consideration for the issue of its shares as a distributable surplus. The further amount must not exceed the unappropriated balance of the acquired company's realized net profits immediately before such acquisition. (Subsec. 7 of 12, ch. 55, 1935.)

The letters patent or the bylaws may provide for the issuance of preferred stock. If the directors of a company make a bylaw in this respect, it must be sanctioned by at least two-thirds of the votes cast at a special general meeting of the shareholders. Unless preference shares are issued subject thereto, they may not be redeemed or converted without the consent of the holders. Shares may be issued with preference and priority as to dividends and voting rights and in any other respect over ordinary stock or other classes of preferred stock. If the holders of preferred stock are given the right to select a certain portion of the board of directors, or their control over the affairs of the company is enlarged or limited, such provisions of the bylaws must be fully set out in the certificates. (59 to 62, inclusive.)

If a company is authorized to do so by its letters patent, it may issue under its seal a warrant stating that the bearer is entitled to the share or shares therein specified, and may provide by coupons, or otherwise, for the payment of future dividends on the shares included in the warrant. These warrants, which may be issued only for fully paid-up shares, entitle the bearer to the shares specified therein, and may be transferred by delivery. (35.)

CALLS ON SHARES

The directors may by resolution call in and demand the whole or any part unpaid on shares at such times and places and in such payments as the letters patent, the bylaws, the Companies Act, or the terms of issue require or allow. Shares may be declared forfeited for nonpayment of calls, and thereupon they revert to the company. The shareholder, at the time of such forfeiture, continues liable to the creditors of the company for the amounts unpaid on the shares. The directors, at their election, instead of declaring the shares forfeited, may enforce payment of all calls by action in any court of competent jurisdiction. (41, 43, 44.)

TRANSFER OF SHARES

The stock of a company is personal property and is transferable, subject to the conditions and restrictions prescribed by the Companies Act, letters patent or bylaws of the company. (31.)

A transfer of shares must be entered in the register of transfers in order to be valid, except for the purposes of establishing the rights of parties to any transfer toward each other, and of rendering any transferee jointly and severally liable with the transferor to the company and its creditors. However, a transfer of shares made by sale under execution or under the decree, order, or judgment of a court of competent jurisdiction is valid. Where fully paid up shares are listed and dealt with on any recognized stock exchange by means of scrip, commonly in use, endorsed in blank, and transferable by delivery, such an endorsement and delivery constitutes a valid transfer, except for the purpose of voting at meetings of the company, and receiving payments on the shares. If the whole amount has not been paid in on shares, they may not be transferred without the consent of the directors. No share may be transferred until all previous calls have been duly paid in, and the directors may decline to register any transfer of fully paid shares belonging to any shareholder who is indebted to the company, except in the case of shares listed on a recognized stock exchange. (36 to 38, inclusive.)

MANAGEMENT OF COMPANY

DIRECTORS

The business of the company must be managed by a board of not less than three directors. (84.) There are no statutory requirements as to residence or citizenship of directors. The persons designated in the letters patent act as directors until replaced by others duly appointed to take their places. (85.) The directors are elected by the shareholders in a general meeting of the company assembled at some place within Canada, at the time, in the manner, and for the term (not exceeding 2 years) prescribed in the letters patent or bylaws. However, the letters patent or supplementary letters may provide for the division of directors into classes. If this is done, one class must be elected in each year for a term not exceeding 5 years, and one class must retire from office in each year. (88.) If the election of directors is not made or does not take effect at the

proper time, the company is not considered as dissolved, but the election may take place at any subsequent special general meeting called for that purpose, and the retiring directors continue in office until their successors are elected. (89.) A person cannot be elected or appointed a director to fill any vacancy, unless he, or a corporation of which he is an officer or director, is a shareholder. The bylaws may provide that he own absolutely in his own right or in the right of such other company a certain number of shares. An undischarged bankrupt may not be elected or appointed director and upon becoming a bankrupt he ceases to hold office. (86.)

The number of directors may be increased or decreased (to not less than three) by a bylaw which must be sanctioned by a two-thirds majority of the votes cast at a special general meeting of the shareholders called for considering it. A copy of the bylaw, certified under the seal of the company, must be deposited in the Department of the Secretary of State, and published in the Canada Gazette before it can be acted upon. (87.)

POWERS OF DIRECTORS

The directors of the company administer its affairs, and make, or cause to be made for the company, any contracts which the company may, by law, enter into. They may make bylaws, not contrary to law, or the letters patent of the company, regarding the following matters: (1) allotment of stock, making of calls, payment, issue and registration of certificates of stock, forfeiture for nonpayment, disposal of forfeited stock and of the proceeds thereof, and the transfer of stock; (2) the declaration and payment of dividends; (3) the stock qualifications of the directors and their remuneration; (4) the appointment, functions, duties, and removal of all agents, officers, and servants of the company, the security to be given by them to the company and their remuneration; (5) the time and place for the holding of the annual meeting, the calling of meetings, regular and special, of the board of directors and of the company, the quorum, requirements as to proxies, and the procedure in meetings; (6) the conduct, in all other particulars, of the affairs of the company not otherwise provided for in the act. (92.) The bylaws which the directors may from time to time repeal, amend, or reenact, except those made under (4) have force only until the next annual meeting of shareholders, unless they have been previously sanctioned by a special general meeting of the shareholders called for that purpose. (93.)

EXECUTIVE COMMITTEE

If the board is composed of more than six directors, it may select from its number an executive committee, of not less than three, to exercise such powers of the board as the bylaws delegate to it, subject to any regulations imposed by the directors. The creation of such a committee must be authorized by a bylaw, duly passed by the directors and approved by at least two-thirds of the votes cast at a special general meeting of shareholders called for the purpose of considering the bylaw. (94.) Whenever the officers of a public company become aware of any substantial impairment of the capital, they must

forthwith inform the directors of its nature and extent, and if the directors are of the opinion that the company is thereby rendered insolvent, it is their duty to call a special general meeting immediately for the purpose of making a full disclosure to the shareholders. (94A, ch. 55 of 1935.)

DIRECTOR INTERESTED IN A COMPANY CONTRACT

A director who is directly or indirectly interested in a contract or proposed contract is required to declare his interest at a meeting of the directors at which the question of entering into the contract is first taken into consideration, or at the next meeting after he becomes so interested. A general notice to the effect that he is a shareholder or otherwise interested in any other company or is a member of a specified firm and is to be regarded as interested in any contract made with such other company or firm is deemed to be a sufficient declaration. The expression "meeting of directors" includes a meeting of the executive committee.

A director is not permitted to vote on such contracts, but this prohibition does not apply to contracts on behalf of the company to give to directors security for advances or by way of indemnity, or in the case of a private company where there is no quorum of directors in office who are so interested, or in the case of a contract between the company and any other company where the interest of the director in the second company is limited to requisite number of shares to qualify him as a director. No liability is imposed upon a director in respect of the profit realized from any contract which has been confirmed by the vote of shareholders at a special general meeting. (95.)

SPECULATION IN SHARES

A director of a public company may not speculate for his own account, directly or indirectly, in the securities of the company, and he is required to submit annually to the secretary a detailed statement of the securities of the company bought or sold by him, for the information of the shareholders at the annual general meeting. "Speculation" is not defined and will be a matter for judicial determination in specific cases. Failure to disclose transactions renders a director liable on summary conviction to a fine not exceeding $1,000 or to 6 months' imprisonment or both, and the same penalty is provided for speculating for his personal account. (96A, ch. 55 of 1935.)

CASH OR EQUIVALENT FOR FULLY PAID SHARES

The issue of nominal or par value shares as fully paid may not be authorized by the directors of a public company, except for a consideration payable in cash to the total nominal amount, or if payable in property or service, the directors must pass a resolution that they have determined in all the circumstances of the transaction that these are the fair equivalents of cash. Every director of a public company, except a mining company, who is a party in authorizing the issue or allotment of any par-value shares as fully paid will, in a suit instituted by a director, shareholder, or creditor within 3 years from the date of allotment of the shares, be liable for the amount deemed inadequate by

a court, if such a resolution has not been passed or if it is proved that the director had knowledge that the consideration was not the fair equivalent of cash, or if he failed to take reasonable steps to ascertain whether the consideration was in fact a fair equivalent. (96B, ch. 55, 1935.)

FINANCIAL ASSISTANCE TO SHAREHOLDERS AND DIRECTORS RESTRICTED

A company is not permitted to make loans to its shareholders or directors or give directly or indirectly any financial assistance in connection with the purchase of shares in the company. The following exemptions from this prohibition exist: (1) the lending of money by the company in the ordinary course of its business where this is part of its business; or (2) the making of loans to persons, other than directors, bona fide in the employment of the company, to assist them in the purchase or erection of dwelling houses for their own occupation; or (3) the provision of money for the purchase by trustees of fully paid shares in its capital stock, to be held by or for the benefit of employees of the company, including any director holding a salaried office in the company; (4) the making of loans to bona fide employees, other than directors, to enable them to purchase the beneficial ownership of fully paid shares in the capital stock of the company; or (5) the making by a private company of a loan to a shareholder or director for the purchase of shares in the capital stock of the company held by an existing shareholder. The powers under (3), (4), and (5) can be exercised only through a bylaw. All directors and officers making or assenting to loans in violation of the above provisions are, until repayment of such loans, jointly and severally liable to the company and to its credits for its debts to the extent of the loans with interest. (15.)

DIVIDENDS

If the directors declare and pay any dividend when the company is insolvent, or which renders the company insolvent or impairs its capital, they are jointly and severally liable to the company, the individual shareholders, and the creditors of the company to the amount of such dividend and interest for all the debts then existing or thereafter contracted; in determining the solvency of the company, no account may be taken of any increase in the surplus or reserves resulting merely from the writing up of the values of the assets of the company, unless made more than 5 years before the date of the declaration of the dividend. A director may exonerate himself from liability by having his protest entered on the minutes of the board when such dividend is declared, or if absent from such meeting he must deliver his protest, within 1 week after he becomes aware of the declaration, to an officer of the company, and within 8 days thereafter deliver or mail by registered letter a duplicate copy to the Secretary of State.

The above provisions do not apply to a mining company or a company 75 percent of whose assets are of a wasting character; these companies can declare dividends so long as there remain enough assets to meet all liabilities exclusive of paid-up capital.