payments must stop at the latest. Otherwise the payment of interest is forbidden. (H. G. B., 215.)

(26) The general meeting passes resolutions regarding the approval of the yearly balance sheet and the distribution of dividends. (H. G. B., 260.) Participation in profits shall be determined proportionately according to payments on shares. If payments have not been made in the same proportion on all shares, the shareholders receive from the divisible profits a preliminary dividend equal to 4 per cent on payments made. If the profits of the year are not sufficient for the declaration of such a dividend, a lower percentage may be fixed. Payments which should have been made in the course of the business year are to be taken into consideration in relation to the time elapsed since the date fixed for such payments. Other methods of declaring dividends may be provided for in the company's charter and by-laws. (H. G. B., 214.) If members of the board of directors and council of supervision are to receive a share of the annual profits as compensation for the performance of their duties, their share is to be reckoned on the basis of net profits after all outstanding accounts and deductions have been taken into consideration, and also after the deduction of the 4 per cent dividend on paid-in capital to stockholders. (H. G. B., 237.) What shareholders have drawn from the company in good faith as a part of profits and interest they are in no case obliged to pay back. (H. G. B., 217.) Directors are liable for the payment of dividends contrary to the provisions of law. (See D 19 above.)

H.-REGULATIONS REGARDING OWNERSHIP OF STOCK IN OTHER CORPORATIONS, OR THE COMBINATION OF DIFFERENT CORPORATIONS.

If a

The commercial code contains nothing on these points. It does provide, however, for the transfer of the property of one stock company as a whole to another company in return for shares of the latter. The ordinary provisions regarding an increase of capital (see under A) do not apply in this case, but announcement of the increase of capital must be made to the business registry and the deed of transfer approved by the dissolved company, or else a publicly acknowledged copy of the same must be submitted at the same time. If a liquidation of the property of the dissolved company is necessary according to the agreement between the two companies, it must take place in the same way as an ordinary liquidation of a stock company. liquidation is not necessary, announcement of the transfer must be made by the dissolved company to the business registry. With the entry of this announcement the dissolution of the company is accomplished, and the property and liabilities are transferred to the other company. The company to which the property is transferred may not, however, unite the property to its own until the outstanding claims against the dissolved company have been adjusted. Until that time the property taken over must be separately administered, and the judicial status of the dissolved company remains the same as it was before. Also the members of the board of directors and the council of supervision of the company taking over the property remain responsible to the creditors of the dissolved company for their administration of its property. The members of the council of supervision are, however, only responsible in case a union of the property of the two companies is allowed to take place with their knowledge and without their interference. (H. G. B., 305, 306.)

I.-REPORTS TO BE MADE TO THE GOVERNMENT.

Aside from the reports to be made to the court of registry, stock companies are not required to make reports to the Government.1 References to these reports for registry have been made throughout in these notes.

K.—REPORTS TO BE MADE TO STOCKHOLDERS.

(27) Any shareholder who deposits a share with the company may demand that the calling of a general meeting and the subjects proposed for discussion thereat be communicated to him by registered letter as soon as they are made public. He may also demand that similar information be furnished him regarding resolutions adopted at the general meeting. (H. G. B., 257.) All other reports made to stockholders come to them through the council of supervision. (See under L below.)

1 Note verbale to the United States embassy in Berlin.

I. PRIVILEGES OF STOCKHOLDERS REGARDING EXAMINATION OF BOOKS AND OVERSIGHT OF BUSINESS-STOCKHOLDERS' MEETINGS.

Ordinarily the shareholders exercise supervision over the business through a council of supervision (Aufsichtsrath). The first council of supervision is appointed by the promoters in case they subscribe for all shares. If not, a general meeting must be called after the shares are listed for the election of the first council, unless some other method of election is provided for in the articles of incorporation. (H. G. B., 190.) Later councils of supervision are elected by the general meeting of stockholders and consist of 3 members unless another number is fixed in the company's charter and by-laws. The first council of supervision holds office until the end of the first general meeting, which assembles a year after the entry of the company in the business registry. Later councils may hold office for terms not exceeding 4 years; but a member of the council of supervision may be recalled at any time by the general meeting, a vote of three-fourths of the capital represented in the meeting being necessary for this purpose. (H. G. B., 241.) Notice of any change in the personnel of the council of supervision must be made in the newspapers and sent to the business registry. (H. G. B., 244.) Members of the council of supervision may not be at the same time members of the board of directors, nor may they transact business as officers of the company. Only in case of the disability of a director, and then only for a time limited in advance, may a member of the council of supervision act in place of a director. During the time he acts in this capacity he must lay down his duties as a member of the council. (H. G. B., 248.) Mention has been made of the compensation of members of the council under G above. It may be added here that the compensation of members of the council of supervision may be reduced at any time by a simple majority vote of the general meeting. (H. G. B., 245.)

It is the duty of the first council of supervision, in connection with the first board of directors, to examine into all transactions undertaken in the founding of the company. But if a promoter becomes a member of the board of directors or council of supervision, or if a member of the company has received any special privilege, or stipulated for any indemnity or reward, either for founding or preparing to found the same, or if shares have been issued for other than a cash consideration an additional examination by special revisers becomes necessary (Revisoren). These revisers are to be appointed by the organization representing the business interests of the district in which the company is located, or, if such an organization does not exist, by the court of the district. A written report is to be made showing the results of these examinations. If revisers have been called in, they must deliver a copy of their report to the organization or court appointing them. Any person may examine this report. If differences arise between promoters and revisers regarding explanations and information to be given by the former, decision rests with the body appointing the revisers. (H. G. B., 192, 193, 194.)

The council of supervision must oversee the management of the company's business in all its branches, and to this purpose must keep itself informed as to the progress of the company's affairs. It may at any time demand an account regarding the company's affairs from the board of directors, and, either as a body or through individual members appointed for the purpose, may examine into the amount of cash, securities, and goods on hand. It must examine into and report to the general meeting on the annual accounts, balance sheets, and propositions regarding the distribution of dividends. It must call a general meeting whenever in the interests of the stockholders it deems it necessary to do so. In case the company decides to bring suit against the directors, the council of supervision is authorized to represent the company. Other duties of the council of supervision are to be provided for in the company's charter and by-laws. As to the accountability of a member of the council of supervision, any such member may without and even against a resolution of the general meeting make complaint against the members of the board of directors. (H. G. B., 246, 247.)

Members of the council of supervision must exercise ordinary business prudence in the performance of their duties. They are jointly liable with members of the board of directors for damages arising from a failure to perform their duties. If any of the violations of law mentioned in D 19 above take place with their knowledge and without their interference they are, together with the directors, specially liable for damages. (H. G. B., 249.) Members of the council of supervision are liable to the same penalties for violations of law as the directors. (See under D above.)

While ordinarily the shareholders exercise their control over the business through the council of supervision, another means more suitable for extraordinary cases is open to them. The general meeting is empowered by a simple majority vote to appoint revisers to examine the balance sheet of the company or any of the trans

Even

actions connected with its founding or the ordinary conduct of its business. if a majority in general meeting is not obtainable for a motion to appoint revisers, shareholders representing one-tenth of the capital of the company may petition the court of the district to appoint revisers to examine into any transaction connected with the foundation of the company or with the ordinary conduct of its business, provided it be of not more than 2 years' standing. Such a petition is, however, only to be granted when evidence is presented tending to show that fraud or violations of law or of the company's charter and by-laws have accompanied the transaction which it is proposed to investigate. The shareholders making such a petition must deposit their shares until it is decided, and must also show that they were possessors of the shares for 6 months prior to the general meeting at which the motion for an investigation was put. Before the revisers are appointed the board of directors and council of supervision must be heard. Upon request the appointment may be made dependent upon the giving of a bond, the amount of which is left to the discretion (of the court). The board of directors must permit the revisers to examine the books and papers of the company and also the amount of cash, securities, and goods on hand. The report on the results of the investigation must be sent by the revisers without delay to the business registry, and the board of directors must announce the report in the call for the next general meeting for discussion at the meeting. In case the revisers have been appointed on the petition of a minority of the shareholders, the general meeting decides whether the company shall bear the costs of the investigation. If the court refuses to grant the minority petition, or if the investigation shows the charges of shareholders bringing the petition to be unfounded, they are held jointly liable as guilty of a malicious procedure for damages arising to the company from their action. (H. G. B., 266, 267.)

PROVISIONS REGARDING GENERAL MEETINGS.

Ordinarily general meetings are called by the board of directors. They may also be called by the council of supervision when the interests of the stockholders require it. Besides, in the cases stated in the law or in the company's charter and by-laws, general meetings must be called whenever the interests of the company require it. (H. G. B., 253.) It is further provided that a general meeting must be called whenever shareholders representing one-twentieth of the capital of a company demand it in writing, stating reasons and purposes of the proposed meeting. The company's charter and by-laws may empower shareholders representing an even smaller part of the capital to do this. În a similar manner shareholders have the right to compel the submission of certain matters for discussion in general meeting. If such demands are complied with neither by the board of directors nor the council of supervision, the court of the district in which the company is located may empower the shareholders to call a general meeting or announce matters for discussion at a general meeting. The court may at the same time take steps regarding the chairmanship at such a meeting. The meeting so called decides whether the costs arising from it are to be borne by the company. (H. G. B., 254.)

The call for a general meeting must be published in the manner prescribed by the company's charter and by-laws at least 2 weeks before the date set for the meeting. If according to the company's charter and by-laws the exercise of the right to vote in a general meeting is conditioned on the previous deposit of shares, at least 2 weeks must be left open for the depositing of the shares. In such cases deposit with a notary is sufficient. If the company's charter and by-laws do not contain such a provision, announcements of intention to participate in a general meeting must be admitted when made not later than 3 days before the date of the meeting. (H. G. B., 255.)

The purpose of the general meeting is to be announced in the call. On request each stockholder must be furnished a copy of the motions proposed for submission to the meeting. Action may not be taken on resolutions which have not been announced at least 1 week before the general meeting. In case of resolutions the passage of which requires more than a simple majority vote according to the provisions of this law or the company's charter and by-laws, notice must be given 2 weeks in advance; but no previous notice is required for the passage of a resolution providing for the calling of a special general meeting, nor for the introduction of motions and discussions without passing resolutions. (H. G. B., 256.)

A list of the shareholders or representatives of shareholders present, giving their names, addresses, and the number of shares represented by each, must be posted in the general meeting. This list must be open for inspection before the first ballot is taken, and must be signed by the president of the meeting. (H. G. B., 258.) Each share carries with it the right to vote. This right is exercised according to the num

ber of shares held. The company's charter and by-laws may, however, provide that in case of single shareholders possessing a number of shares the number of votes allowed them may be limited to a certain highest number; or shareholders may be divided into grades, according to the number of shares held, and a certain number of votes be assigned to each grade. If different classes of shares are issued, different voting power may be assigned to each by the company's charter and by-laws. Proxy voting is allowed. No one may either vote or cast the vote of another on a resolution relieving him from responsibility or freeing him from a duty. The same rule holds good regarding resolutions concerning legal processes between the company and a shareholder. The charter and by-laws may provide further rules regarding conditions and manner of voting. (H. G. B., 252.) Resolutions of the general meeting require a simple majority of the votes cast for passage, unless further requirements are fixed by law or by the company's charter and by-laws. (H. G. B., 251.)

The passage of an amendment to the company's charter and by-laws requires a vote representing three-fourths of the capital present at a general meeting. A change in the object of the company (Gegenstand des Unternehmens) requires a similar majority. Further requirements may be made in the company's charter and by-laws. If a change is to be made in the relations of different classes of shares whereby one class is disadvantageously affected, a second and separate ballot must be taken in addition to the vote of the general assembly. In this second ballot only the shareholders of the class affected may participate, and the resolution is not counted passed unless it receives a three-fourths majority of the capital voting in this second ballot. (H. G. B., 275.) A resolution imposing duties not involving cash payments upon shareholders requires the consent of all shareholders affected by it. (H. G. B., 276.) All amendments to the company's charter and by-laws must be announced to the court of the district in which the company is located for entry in the business registry. Until so entered they are without effect. (H. G. B., 277.) Further, the minutes of a general meeting must be sworn to in court or before a notary, and a certified copy must be sent to the business registry before the resolutions passed at the meeting become valid. (H. G. B., 259.)

The ordinary work of a general meeting is stated as follows: The rights to which shareholders are entitled in the affairs of the company, and especially in regard to the direction of its business, are exercised by the passage of resolutions in the general meeting. (H. G. B., 250.) The general meeting passes resolutions regarding the approval of the yearly balance sheet and declaration of dividends, and also with regard to the release (Entlastung) from further responsibility of the board of directors and council of supervision. (H. G. B., 260.) Complaint may be made in the State court of the district (Landgericht) against resolutions of a general meeting which are contrary to law or to the company's charter and by-laws. The legal procedure in such cases is defined at length in the commercial code. In case such a suit is decided against the shareholders bringing it, they are held jointly liable for damages arising to the company therefrom. (H. G. B., 271–273.)

Heavy penalties are provided against the misuse of shares in general meetings. Persons who knowingly prepare incorrect or forged certificates of the deposit of shares in order to use them as evidences of the right to vote in a general meeting (see L), or who knowingly make use of such incorrect or forged certificates in voting in a general meeting, are punishable with imprisonment not to exceed 1 year and fine not to exceed 10,000 marks ($2,500). Loss of civil rights may also be inflicted. If extenuating circumstances are shown, the fine only may be imposed. Persons making or accepting guaranty or promises of special advantages, either for voting in a certain way or for refraining from voting in a general meeting, are punishable with a fine of not to exceed 3,000 marks ($750), or with imprisonment for not longer than a year. Persons voting the shares of others in general meetings without their consent, or making unauthorized use of them in exercising other rights of shareholders, are liable to a fine of from 10 to 30 marks ($2.50 to $7.50) on each share so used, the fine to be not less than 1,000 marks ($250), however. Persons who borrow the shares of others, making payment therefor and using them in voting in a general meeting, as well as those who by loaning their shares knowingly assist in such transactions, are subject to the same penalty. (H. G. B., 316-318.)

M.-METHODS OF TAXATION OF CORPORATIONS.

Imperial stamp tax.-At the time of issue of shares, certificates, or other securities of domestic stock companies, a stamp tax of 1 mark (25 cents) on every 100 marks ($25) or part thereof is levied. Foreign shares issued, sold, pledged, or otherwise entering into business transactions in Germany pay a stamp tax of 1 mark 50 pfennigs (37 cents) on every 100 marks or part thereof. This tax is paid only once. Shares,

certificates, securities, etc., on which this tax has been paid are subject to no other stamp tax in the separate States of the Empire. Companies which are recognized by the Bundesrath as serving exclusively the common welfare, which limit dividends to 4 per cent, and whose stockholders at the time of dissolution of the company claim nothing more than the face value of their shares, are exempted from this tax. (Reichsstempelgesetz of April 27, 1894, secs. 4, 5, 6.)

(The above is the only imperial tax on corporations referred to in the R. G. B. from the foundation of the Empire to the present time. The succeeding notes refer to Prussian taxes.)

Income tax.-Stock companies are liable to an income tax according to the law of June 24, 1891. The taxable income of such companies is ascertained by adding to the sum paid to stockholders as interest and dividends the sums applied to the payment of debt or the amortisation of capital stock, to the improvement or extension of the business, and to the formation of a reserve fund.1 From the total sum so obtained an amount equal to 3 per cent of the paid-in share capital is deducted. The scale of taxation is as follows:

For incomes over $26,250 the tax increases $50 for each additional $1,250 of income, i. e., a maximum rate of 4 per cent from $25,000 on.

Communal income tax.-Stock companies are also subject to the communal income tax when such a tax is levied. (Komm. Abgabegesetz of July 14, 1893.) It is assessed in each commune upon the amount of income received by the company from its establishment in that commune. The State income-tax assessment is used

1'An exception is made in the case of reserve funds of insurance companies intended as a reserve for payment of insurance.