Membership in a private business corporation arises at once as an incident of the ownership of stock. When stock is purchased or subscribed2, the transferee or subscriber becomes ipso facto invested with all of the rights of membership. The two principal rights are, first, the right to participate in meetings of the stockholders, and second, the right to participate in dividends1.

$89. Proxies.

The word "proxy" is applied interchangeably to the agent who represents a stockholder at meetings, and to the written power under which the agent acts. As to the instrument, no special form need be followed, unless required by the by-laws. The power should be in writing and should be filed with the company. It may be revoked verbally, and this is true when it purports on its face to be irrevocable, except in cases where the power is coupled with an interest vested in the agent. The right to attend and vote by proxy did not exist at common law.

1. Even where the stock is purchased with wrongful motives, the right of membership conferred can not be denied by the corporation. Rice v. Rockefeller, 134 N. Y. 174, 17 L. R. A. 237. Transfer on the books is not essential to confer these rights. McLean v. Medicine Co., 96 Mich. 479-481.

2. Valentine v. Water Power Co., 128 Mich. 280-294.

3. Every stockholder has the

right to attend and participate in stockholders' meetings. Forcible ejectment from a meeting is a trespass. Noller v. Wright, 138 Mich.

416.

4.

Hunter v. Roberts, Throp & Co., 83 Mich. 63.

5. Peoples Home Savings Bank: v. Superior Court, 104 Cal. 649, 29 L. R. A. 844-846, Note III.

6. Cook's Corp. 610.
7. Marshall's Corp. 914.
S. Marshall's Corp. 909.

By statute in Michigan, the right may always be conferred by by-laws not inconsistent with the general laws and the charter. The cumulative voting law10 confers upon corporations generally the right to vote by proxy for the election of directors. In the absence of a permissive statute or by-law, the right to vote by proxy does not exist in this state. A stockholder who has been present by proxy is bound by the same estoppels as though he had been present in person11.

A dividend is net gain declared by the directors for distribution among the stockholders 12 It is not material how the gain arises. It may accrue from donations 13 as well as from the profits of the enterprise. But it must be a fund capable of division without impairment of the capital stock11. Discretionary power to declare dividends is vested in the board of directors. There is no dividend until one has been declared16.

In the absence of fraud or breach of trust, equity will not compel the declaration of a dividend1. After a dividend has been declared, mandamus does not lie to compel its payment18. Where the majority holders perpetrate a fraud upon the minority by wrongfully refusing to declare dividends out of a surplus not used or required in the corporate business, equity will afford a remedy19. Before filing a bill to compel official action, demand should be made upon the board of directors20. But where it appears from the evidence that the demand would have been refused had it been made, the omission of demand will not be fatal21. Substantial rights are not dependent upon idle forms22.

Dividends, even though paid in good faith, may be followed by creditors and recovered from stockholders, where the capita! stock has been impaired by the payment. Such impairment is a question of fact. Worthless or overvalued assets carried on the books, and there producing an apparent surplus as a matter of arbitrary accounting, afford no protection to stockholders. The question of impairment or non-impairment of assets is a question of substance, not of appearances, nor even of honesty of intent. Assets may not be divided among stockholders by way of dividends, unless the actual value of the property remaining equals the par value of the paid up capital stock23.

17. "Courts of equity will not interfere in the management of the directors, unless it is clearly made to appear that they are guilty of fraud or misappropriation of the corporate funds, or refuse to declare a dividend when the corporation has a surplus of net profits. which it can, without detriment to its business, divide among the stockholders, and when a refusal to do so would amount to such an abuse of discretion as would constitute a fraud, or breach of that good faith which they are bound to exercise toward the stockholders."-Chief Justice Champlin in Hunter v. Roberts, Throp & Co., 83 Mich. 63; See also Cicotte v. Anciaux, 53 Mich. 227235.

18. People v. Central Car Co., 41 Mich. 166.

19. Phillips v. Jacobs, 145 Mich. 108.

23. American Steel & Wire Co. v. Eddy, 138 Mich. 403-408; Id. 130 Mich. 266; Brewer v. Michigan Salt Ass'n, 58 Mich. 351. In American Steel & Wire Co. v. Eddy, 138 Mich. 403-408, the following statement was made by Justice Hooker: "Whenever it is satisfactorily proved that the assets of a corporation are so reduced as to impair the capital, the creditors have a right to follow them into the hands of the stockholders to whom they have been paid as dividends, and who must be held to hold such assets as a trust fund for the benefit of creditors." Quoting with approval from the brief of counsel in Richardson

V.

Capital stock may be paid up by way of stock dividends, that is, by adding net profits to the capital and issuing shares covering the increase2. Stock dividends are legally unobjectionable, and are not uncommon. Dividends may also be paid in bonds or other property 25. As soon as declared, a dividend becomes a debt from the corporation to the stockholder, payable at a time fixed by the directors, or, if they fix no time, upon demand after a reasonable time for its voluntary payment has elapsed. Suit may be brought by the stockholder to enforce payment26 and, if no fund has been set aside out of which payment is to be made, he is upon the footing of a general creditor. But if a fund has been segregated from the corporate assets for the purpose of paying a declared dividend, such fund is a trust fund and the stockholders are entitled to receive it, even as against creditors, in case the corporation subsequently becomes insolvent27.

In the absence of an agreement to the contrary, the dividend belongs to the person who holds the stock at the time the dividend is declared. A transferee takes the dividends declared after transfer, though earned before, but he does not take dividends declared before transfer, though they may be payable thereafter. A pledge carries with it the right to dividends, and the pledgee is entitled to receive them whenever a transferee would enjoy a like right29.

Where by provision of the charter, by-laws, or stock certificates, stock is transferable only upon the books of the company, the corporation is, in the absence of notice, protected in paying dividends to the proper registered holder-the person who, of

Buhl, 77 Mich. 632-649, Chief Justice Sherwood said: ""The first thing to be done by any manufacturer who would ascertain his net earnings during the preceding year, is to take a careful inventory of what he has left, including his plant and machinery, and then make just and full allowance for all losses and shrinkages of every kind that he has suffered in his property during the year, and for all expenses of every kind, ordinary or extraordinary, that have occurred during the year, and, having made such inventory, and deducted such losses and shrinkage of every kind, his net earnings will be the difference between all his investments in his business and all

record, held the stock at the date when the dividend was declared. But after receiving notice of an unregistered transfer, the corporation pays in disregard of the notice at peril. While the corporation may set off a declared dividend against a matured debt due from a stockholder", it can not exercise such right of setoff against a joint liability due from the stockholder and another, although if the liability were joint and several, it might do so33.

$91. Liability for Labor Debts.

At common law the liability of the stockholder ended when he had paid par for his shares. In Michigan we have, in addition to the subscription liability, a general liability imposed by constitution35, making the stockholders individually liable for all labor debts of the corporation. This liability is enforcible under the provisions of several of the enabling acts, and also under a general statute enacted for that express purpose. This liability is contractual, not penal37, and is in the nature of a suretyship obligation38. The liability for labor debts attaches to all who were stockholders at the time when the labor was performed39, and a subsequent transfer of stock, even though made in good faith, does not defeat the liability, nor transfer it".

To constitute the claim a labor debt, within the meaning of the state constitution and statutes, the service through which the obligation arose must have been wholly, or principally, manual labor12. Thus it has been held in this state that the services of

corporation by the holder of a labor claim releases the stockholders from liability, except as they consent to the extension. Hanson v. Donkersley, 37 Mich. 184; Powell v. Eldred, 39 Mich. 552; Kirkpatrick v. Mehalitch, 113 Mich. 631.

39. Macomber V. Wright, 108 Mich. 109-114; Voight v. Dregge, 97 Mich. 322.

40. Kamp V. Wintermute. 107 Mich. 635-639; O'Brien v. Fulkerson, 75 Mich. 554; Voight v. Dregge, 97 Mich. 322-324.