them to its shareholders pro rata "as a stock dividend" it was held that such distribution was misnamed, and that it was as much of a cash dividend as if the debt had been paid in cash and the cash distributed, and therefore was to be treated as income rather than as principal where it was paid into a trust. Green, Trustee, vs. Bissell et als., 79 Conn. 547.

Where a trust owned stock in a bank which consolidated with another under an agreement that the assets of each should be liquidated and any surplus held by one in excess of that held by the other should be refunded to its own stockholders, and the old corporation dissolved, it was held that the sum distributed to the trust, being the proceeds of liquidation, went to principal and not to income. Curtis, Trustee, vs. Osborn et als., 79 Conn. 555.

Right of stockholders to dividends. The directors being the responsible agents of a corporation the courts will not interfere with their discretion in its management provided such discretion is fairly exercised, and they cannot ordinarily be compelled in the absence of fraud to declare a dividend even out of earned profits if they deem it wiser to invest such profits in the business. Spooner vs. Phillips, 62 Conn. 62. A dividend once declared, however, out of actual profits cannot be avoided or recalled by a subsequent vote, and a minority of the stockholders may compel its payment. Beers vs. Bridgeport Spring Co., 42 Conn. 17; Cogswell vs. Second National Bank, 78 Conn. 75. After all the stockholders but the plaintiff have been paid a dividend which has been declared the corporation cannot set up in defense to an action by him that the dividend has not been earned, Stoddard vs. Shetucket Foundry Co., 34 Conn. 542; but a receiver may recover from a director and stockholder dividends received by him when he knew or should have known that the corporation was then insolvent, at least as far as necessary to discharge the corporate

indebtedness. Conn. 118.

Davenport, Receiver, vs. Lines, 72

A stockholder

Unauthorized distribution of Assets. who, knowing the corporation is insolvent, sells his stock to the company and receives payment from a debtor of the corporation whose debt the corporation releases is liable to a trustee of the corporation subsequently appointed for the amount so received, since the substance of the transaction is a withdrawal of assets of the corporation. Bush, Trustee, vs. Ross, 68 Conn. 29. So a stockholder who conveys his stock to the corporation and receives in return a portion of its assets is liable to the receiver in an action brought for the benefit of creditors, even though he acts through an agent and does not know the corporation is the purchaser, the essential thing being that he has in fact received a portion of the assets. Crandall et al., Receivers, vs. Lincoln et als., 52 Conn. 73.

The stock of a company is its only basis of credit. It is of vital importance that the law should rigidly guard and protect the capital stock. It is in many respects regarded in equity as a trust fund for the payment of debts, to which the creditors have a right prior to any claim of stockholders; and courts will be astute to detect and defeat any scheme or device which is calculated to withdraw this fund or place it beyond the reach of creditors. Crandall et al., Receivers, vs. Lincoln, 52 Conn. 73. See also Bush, Trustee, vs. Ross, 68 Conn. 29.

A dividend on the capital stock of a corporation payable in stock of another corporation which has been purchased by the first corporation out of earnings and held by it as an asset and distributed so that it passed from its control and ownership, has all the characteristics of a "cash dividend," and § 377 above set forth does not apply thereto. Union & New Haven Trust Co. vs. Taintor et al., 85 Conn. 83 Atl. 697.

Sec. 6. Liability for causing insolvency by reducing stock. In case the reduction of the capital stock of any corporation shall render it insolvent, at the time of such reduction, the stockholders voting in favor of such reduction shall be jointly and severally liable, to the amount of such reduction, for all debts of the corporation existing at the time of such vote, after judgment has been obtained against the corporation and execution has been returned unsatisfied. The records of the corporation shall show the name of every stockholder voting in favor of such reduction. No such reduction shall be valid unless the names of the assenting stockholders appear of record as aforesaid, nor unless, within thirty days from the date of the vote authorizing such reduction, a copy of the certificate filed in the office of the secretary of the state shall be published twice a week for two successive weeks in a newspaper published in this state and having a circulation in the town in which such corporation is located.

NOTES.

How stock of specially chartered corporation may be reduced. See § 52, infra, page 96.

How stock of corporation organized under general laws may be reduced. See § 74, infra, page 117.

Sec. 7. New Certificates. The directors, after a reduction of capital stock, may require each

stockholder to return his old certificate, and upon the return thereof shall issue a new certificate for the number of shares to which he is entitled after the reduction; and such corporation, after such reduction, may increase its capital stock to any amount authorized in its charter, certificate of incorporation, articles of association, or in any statute affecting it.

Sec. 8. Loans to officers restricted. No officer or director of any manufacturing corporation shall borrow any of the funds of the corporation or use the same for any purpose other than the business of the corporation without paying interest to such corporation for the use of such money, and without a majority vote of all the directors of such corporation and without furnishing adequate security for such loan.

Sec. 9. Profits may be shared with employes. Any corporation organized after May thirtyfirst, 1886, may by its board of directors distribute to the persons employed in its service, or any of them, such portion of the profits of its business as said board may deem just and proper. Any corporation organized on or prior to May thirty-first, 1886, may give to its board of directors the power to make such distribution by a majority vote of all the stockholders at a meeting warned and held for the purpose.

Sec. 10. Directors. The property and affairs of every corporation having a capital stock shall be managed by three or more directors, except that the charter of a specially chartered corporation may provide otherwise. Such directors shall be stockholders, except as hereinafter provided, and shall be chosen annually by the stockholders at such time and place as may be provided by the by-laws, and shall hold office for one year and until others are chosen and qualified in their stead; but the original or amended certificate of incorporation of any corporation to which the Corporation Act of 1901 now applies may provide for the classification of the directors, either as to their term of office, or as to their election by one or more classes of stockholders exclusively, or both; provided, that no director shall be elected for a shorter term than one year nor for a longer term than five years and the classification shall be such that the term of one or more classes shall expire each succeeding year. The directors or trustees of any corporation, or the governing board of any corporation having no directors or trustees, may fill any vacancy in their own number for the unexpired portion of the term or until such corporation shall fill such vacancy. A majority of the directors shall constitute a quorum for the transaction of business unless it is provided in a by-law adopted by a stockholders' meeting that less than a majority shall constitute a