by-laws or by the resolutions of the general meeting. Toward third persons, however, no limitation of the power of the board of directors to represent the company has legal effect. The board of directors makes oath in the name of the company. Each change in the membership of the board of directors must be announced in the Commercial Register under penalty of a fine in contempt. (Ordnungsstrafe.)

These provisions limit the executive committee, in case such is formed, as well as the board of directors.

SECTION 35.-LIMITATIONS UPON MEMBERS OF THE BOARD OF DIRECTORS.

It must be provided in the by-laws that members of the board of directors may not, without the consent of the company, begin the management of an undertaking similar to that of the company on their own account or for others, nor enter into a similar undertaking as a personally responsible member (persönlich haftende Gesellschafter), nor undertake the functions of a member of the board of directors, council of supervision or council of direction of another similar corporation. It must also be stated in the by-laws which organ of the company (board of directors, council of direction, council of supervision or general meeting) is competent to grant this permission.

In case legal business between the company and a member of the board of directors is undertaken, the by-laws must reserve the power of consenting to such business to the council of direction, the council of supervision, or the general meeting.

SECTION 36.THE COUNCIL OF DIRECTION.

In addition to the board of directors the by-laws may provide for the appointment of a special organ of the company, the council of direction, to which may be left by the by-laws the decision in certain important affairs not belonging to the sphere of action of the general meeting; or in certain business affairs the board of directors may be bound to obtain the consent of the council of direction. The by-laws must prescribe the method of appointment or election of the council of direction, the manner in which it shall pass resolutions, etc. The council of direction may also be intrusted by the by-laws with the appointment of the board of directors in case it is provided that the members of the council of direction shall be elected by the general meeting for terms not exceeding five years.

SECTION 37.-ORGANS OF CONTROL, COUNCIL OF SUPERVISION, REVISERS OF ACCOUNTS.

The by-laws of every corporation must provide for the appointment of an organ for the examination of the yearly accounts of the company.

If a council of supervision is appointed it must have at least the measure of power prescribed by the general commercial law (H. G. B., Sec. 225), as follows:

"If a council of supervision is appointed it must supervise the management of the business of the company in every branch; it may inform itself with regard to the course of the company's affairs, and it may at any time examine the books and papers of the company and the amount of money in the treasury.

"It must examine the annual accounts, balance sheets, and propositions for the declaring of dividends, and must make a report on these matters to the general meeting of the stockholders every year.

"It must call a general meeting whenever this is necessary in the interest of the company.'

The by-laws may also give the council of supervision duties mentioned under Sec. 36 which would usually belong to a council of direction if such existed. The council of supervision must have at least three members.

If no council of supervision exists the duties usually performed by it may be performed by revisers of accounts. The general meeting elects the members of the council of supervision or the revisers of accounts. In case at least three members of

the council of supervision are to be elected in any one year provision is made for a limited minority representation of shareholders as follows: If it be found that in balloting for each or the first two members of the council of direction to be elected at least one-third of all the votes cast were in favor of one person, without, however, securing his election, this person must without further balloting be declared elected to the remaining place. As long, however, as a person so elected sits in the council of supervision no other person may be elected to it in this way.

The term of members of the council of supervision or of revisers of accounts must not exceed 5 years, but they may be reelected when so provided in the by-laws. The first council of supervision or revisors of accounts, however, hold office only for

a period up to the end of the general meeting of the shareholders in which the balance sheet for the first business year of the company is accepted.

The appointment of members of the council of supervision and of revisers of accounts may be recalled at any time by the general meeting. It must be provided in the by-laws that members of the council of supervision or revisers of accounts may not at the same time be members of the board of directors or officials of the company nor concerned with the immediate management of its business. Only persons qualified in their own right may be appointed members of the council of supervision or revisers of accounts.

SECTION 38.-SALARIES.

The by-laws must contain clear provisions as to whether members of the board of directors or executive committee, or members of the council of direction, council of supervision, or revisers of accounts are to receive a compensation for the performance of their duties in the shape of a share of the net profit (Tantiémen), or in any other form, or whether they are to exercise their functions without compensation. All provisions regarding the compensation of officers must be submitted to the general meeting with the single exception that the council of direction or the council of supervision may fix the compensation of members of the board of directors or executive committee in case it does not take the form of a share of the net profits.

SECTION 39.-SPHERE OF ACTION OF THE GENERAL MEETING.

The by-laws must clearly define the sphere of action of the general meeting, reserving to it especially the following rights:

(1) For a period of at least 3 years after the registry of the company it must pass upon contracts by which the company is to acquire definite properties (Anlagen), either existing or to be produced, which are to be used permanently in carrying on the business of the company, in case the price to be paid for the same exceeds the fifth part of the share capital. Any change in such contracts to the burden of the company must also be submitted to the general meeting except in the case of the purchase of real estate1 (Liegenschaften) at auction.

(2) Approval of the annual accounts and of the resolution regarding division of net profits and the relief from responsibility of the board of directors.

(3) The election of members of the council of supervision or of revisers of accounts, as the case may be.

(4) Resolutions with regard to the change of the object of the undertaking, the continuation of the company beyond the time originally fixed, increase or reduction of share capital, or any change of the by-laws whatsoever.

(Each resolution of the above sort requires the approval of the State. See Secs. 15 to 18.)

(5) Resolutions with regard to the manner of issue of new shares in case of an increase of the share capital. (See Sec. 31.)

(6) Resolutions regarding the dissolution of the company or the union of the company with another corporation."

SECTION 40.-CALLING OF THE GENERAL MEETING.

The general meeting of shareholders must be called at least once a year, according to law. The by-laws may provide for having it called oftener, and it must always be called together whenever the interests of the company apparently make it necessary. If the shareholders at a general meeting so decide, another general meeting must be called within 30 days. A shareholder or a number of shareholders owning one-tenth of the share capital or even less, in case the by-laws so provide, may demand the calling of a general meeting, stating over their signatures the reasons for their action. A similar number of shareholders may also demand at any time in a signed statement, giving their reasons, that certain specified subjects be inserted in the order of business of the next general meeting, and that announcement of the same be made to the shareholders, provided only that the said demand be made within a certain period before the general meeting to be fixed by the by-laws. Ordinarily the general meeting is to be called by the board of directors. by-laws may provide that beside the board of directors and the council of supervision other organs of the company may also be empowered to call a general meeting.

The

1 An exception is made in the case of companies formed for the purpose of dealing in real estate. 2 H. G. B., 215 and 247.

3 See also H. G. B., 225.

The call for a general meeting must state in as great detail as possible the subjects to be discussed, especially any contemplated change in the by-laws. If different kinds of shares must be voted separately on any subject, this circumstance must also appear in the call.

A general meeting may be called only at the seat of the company unless the bylaws expressly provide for holding it at other places. The call for a general meeting must be issued at least 14 days in advance of the meeting.

SECTION 41.-PUBLICITY OF THE MOTIONS TO BE PRESENTED TO A GENERAL MEETING.

Any shareholder must, upon request, be furnished with a statement of the resolutions to be introduced at a general meeting at least 3 days before the day set for the meeting, or, if he demands it, he must be permitted access to all resolutions and statements in support of resolutions in the business rooms of the company within a similar period prior to the general meeting.

SECTION 42.-PROOF OF RIGHT TO VOTE AT A GENERAL MEETING.

The by-laws must contain provisions with regard to the way in which shareholders are to qualify for the right to vote at a general meeting (entry of names of shareholders in the company's share book in the case of shares issued in the names of particular persons, depositing the shares, and so on). If shares must be deposited a notice of at least 8 days must be given shareholders for this purpose.

SECTION 43.-RIGHT OF VOTING IN A GENERAL MEETING.

Each share guarantees the possessor 1 vote unless the charter of the company provides otherwise, as, for instance, that 1 vote may be cast on a certain number of shares. At least 1 vote must be given to shares aggregating 10,000 crowns, in case the share capital is 1,000,000 crowns or more. If the share capital is less than 1,000,000 crowns, at least 1 vote must be given to a number of shares, the nominal value of which amounts to a hundredth part of the share capital. Holders of a smaller number of shares may be permitted by the by-laws to name a plenipotentiary to exercise their right of voting in the general meeting. It is not forbidden that a maximum limit be set to the number of votes of any one shareholder, or that the number of votes be limited by dividing the shareholders into classes according to the number of shares held by them.

If shares of different descriptions or of different nominal value are issued, the right of voting upon them must be so arranged that equal voting power is assigned to equal contributions to the share capital.

SECTION 45.-QUORUM AT GENERAL MEETING.

The by-laws shall fix the number of votes necessary for a quorum at a general meeting, which, however, must represent at least one-tenth of the share capital. Provision is made for the calling of a second meeting in case a quorum does not appear. At every general meeting a list of the shareholders or proxies present, together with a statement of the number of shares and votes they represent, etc., must be made out. This list must be open to inspection by any shareholder or representative of shareholders present.

SECTIONS 46, 47, AND 48.-PASSAGE OF RESOLUTIONS.

The by-laws may specify certain sorts of resolutions, for the passage of which more than a simple majority of votes is required, and may fix other conditions with regard to the manner in which votes are to be taken on such resolutions, and who shall preside at such times. Resolutions regarding contributions other than cash to the share capital or the purchase of property necessary to the foundation of the company must, according to the by-laws, be passed by a majority of at least three-fourths of the votes cast in a general meeting and representing at least one-fourth of the total share capital. Amendments to the by-laws can be passed only at general meetings at which persons holding the right of voting on at least one-third of the share capital are present. They must receive a majority of not less than three-fourths of the votes cast at such a meeting. A change in the object of the undertaking may not be made by a simple majority unless this is expressly permitted by the by-laws.

SECTION 49.-ACCOUNTS.

It is the duty of the board of directors to see that the necessary books of the company are kept. At the close of every business year a profit and loss account and balance sheet are to be made out according to principles fixed in the by-laws. These accounts must cover the whole activity of the company and must be made in accordance with all legal provisions and with such care as a methodical business man would exercise. Assets and liabilities especially are to be indicated at their actual value at the time the balance sheet is made out. Depreciation must be accounted for wherever it takes place, and the by-laws must provide for deductions on this account. If necessary, they should also state the principles according to which such deductions are estimated. The share capital must be reckoned among the liabilities on the balance sheet. In case of a successive reduction in the amount of the share capital (Sec. 33), no deduction from the liabilities in the balance sheet on that account is to be made until the reduction in the share capital has actually been accomplished in legal form.

SECTION 50.-SUBMISSION OF ACCOUNTS TO STOCKHOLDERS.

The by-laws must provide that the accounts for each business year mentioned above are to be submitted to the stockholders by the board of directors within the first 6 months of the following business year, together with a report regarding the management of the company. A copy of the accounts and report must be sent upon demand to each shareholder at least 3 days before the day of the general meeting at which a resolution approving the balance sheet is to be presented. Such resolutions are to be postponed for final action whenever at a general meeting they receive a simple majority of the votes only, or when a minority representing at least the tenth part of the total capital demands such postponement on the ground that particular items have been omitted from the balance sheet. The postponement in the latter case must continue until the required statement with regard to the particular items is made.

SECTION 51.-COSTS OF FOUNDING COMPANY.

At the formation of a company it may be provided in the by-laws that the special costs attendant upon the founding of the company may be distributed over a period of years not to exceed 5. The only costs besides those necessary for the founding of the company that may thus be met by amortization are public duties levied on the occasion of the founding of the company. With the accounts for the first business year must be submitted to the general meeting a detailed summary account of the total expenditure incurred in founding the company.

SECTION 52.-DIVISION OF NET PROFIT.

The by-laws must contain exact provisions according to which the net profit is to be estimated and paid out. Only that may be divided among the shareholders which remains as a surplus, shown by the assets over liabilities, after all necessary deductions, including contributions to the reserve fund, have been made.

SECTION 53.-RESERVE FUND.

The by-laws of every corporation must provide for the formation of a reserve fund to cover incidental loss. Into this reserve fund are to be paid—

(1) The twentieth part of the annual net profit until the reserve fund amounts to one-tenth of the share capital, or to a higher percentage if so provided in the by-laws. (2) Amounts paid for shares in excess of their face value, after all deductions are made for the cost of the sale of the same.

(3) Amounts paid by shareholders for the guarantee of special privileges upon their shares-unless provision be not made for the application of such sums to cover extraordinary deductions or losses.

So long as the reserve fund does not exceed one-tenth of the share capital it may be used only to cover losses. It may be provided in the by-laws that when it exceeds this amount it may be applied to increase the dividends to be paid to the shareholders, but the amount so applied must not exceed a maximum fixed in the by-laws which can not be greater than 5 per cent of the share capital in any one year. Additions to dividends from this source are only to be paid after all losses have been covered, and in no case may contributions of the sort mentioned under (2) and (3) above be so applied.

The by-laws may provide for the collection of other funds. Special safeguards are thrown around the distribution of such funds, which can follow only in the form provided by the by-laws and as the result of the action of a regular general meeting.

SECTION 54.-NOTICES AND ANNOUNCEMENTS.

The by-laws must contain provisions regarding the form in which the company shall issue its notices. The newspapers which it shall use for this purpose must be specified. In all cases notices must appear in the Wiener Zeitung, and also, in case the company has its seat outside of Lower Austria, in the local official paper. papers may also be designated.

SECTION 55.-DISSOLUTION AND LIQUIDATION.

Other

The dissolution of a corporation requires the same majority in a general meeting as is necessary for the amendment of the by-laws (Sec. 48). A resolution for the union of a corporation with another can not take place unless this is expressly permitted by the by-laws.

The by-laws must provide that the powers of the general meeting and of the council of supervision or revisers of accounts, as the case may be, shall remain unimpaired during continuance of liquidation. The powers of liquidators are fixed in the general commercial law. The by-laws must provide that the sale of real estate by liquidators, without the consent of the general meeting, can take place only at public auction.

SECTION 56.-STATE SUPERVISION.

Corporations are subject to the general supervision of the State designed to protect public interests. A permanent organ of supervision for a particular company will be appointed only in exceptional cases when such a measure is demanded by weighty public considerations. Shareholders or other interested persons have no legal claim to the interference of the state administration; they must rely upon civil law in order to secure their claims against the company.

SECTIONS 57 AND 58.

The regulations of this decree apply to existing corporations only in so far as they do not conflict with the by-laws already in effect. This decree takes effect the day of its publication (September 22, 1899).

1 H. G. B., 244; 137 et seq.

2 Imperial Patent of November 26, 1852.