be
recovered either by the corporation or by its representative for the
benefit of creditors. The fact, says Clark, that the directors acted
in good faith under a misconception of the amount of profits possessed
by the company or that were available for that purpose is immaterial.
And if the capital stock of a company has been wrongfully paid away by
the directors as dividends, it may be recovered by the creditors from
anyone who is not an innocent receiver.

Whether a dividend shall be declared, and also the amount, are
questions lying largely within the discretion of the directors. A
company may earn a large net profit, yet the directors may think it
should be used for improvements or kept for a future contingency in
business, perhaps a time of business depression. Courts will not
interfere in such cases. Corporations are sometimes organized with the
well understood intention that the earnings shall be kept until a
large surplus has been accumulated. On the other hand directors are
not permitted to abuse their power; they must act in good faith. They
cannot withhold dividends in order to depress the value of the
property and buy its stock at a lower price.

Dividends must be distributed among the stockholders without unjust
discrimination. "The dividends," said a court, "must be general on all
the stock so that each stockholder will receive his proportionate
share. The directors have no right to declare a dividend on any other
principle. They cannot exclude any portion of the stockholders from an
equal participation of the profits of the company." A stockholder
cannot be deprived of his dividend because he purchased his stock a
very short time before the action of the directors in declaring a
dividend. On one occasion a person held bonds convertible into stock.
Shortly after the conversion a dividend was declared. He was as much
entitled to his dividend as any other stockholder.

To whom should the dividend be paid? To the person whose name appears
as owner on the books of the company. But if a company has notice of a
transfer of stock, a dividend subsequently declared should be paid to
the purchaser even though the transfer was not registered. In pledging
stock it is a common practice to declare that the pledgee shall be
entitled to the dividends that are declared. If nothing is said, and
the stock has been transferred on the books of the company, the
pledgee is entitled to the dividends following the general rule