88 SECRETARIAL PRACTICE
that there is no illegality in providing in articles that dividends
unclaimed for a specified time will be forfeited, though one
learned text-writer (see Palmer's Company Precedents, Vol 1,
13th edition, p. 754) suggests that such a provision is of doubtful
validity. In any event the Committee of the Stock Exchange
object to any such provision (see Appendix D), and conse-
quently if an Official Quotation is desired it should not be
inserted.

Out of what A form of resolution to pay a dividend is given in Chapter

Moneys XIV.

Payable. As stated above, the fundamental rule with regard to the
payment of dividends is that no dividends shall be paid
out of capital; a payment of dividend out of capital is an
ultra vires act on the part of the company, and constitutes a
breach of trust by the directors, and renders them liable to
make good to the company any amount so paid [Oxford
Building Society (1887), 35 Ch.D. 502; Flitcroft’s Case (1882),
21 Ch. D. 519; Masonic Assurance Co. v. Sharpe (1892),
[ Ch. 154]. No such payment can be made, even though the
memorandum [Verner v. General and Commercial Trust (1894),
2 Ch. 239], or articles [Trevor v. Whitworth (1887), 12 A.C.
409; Masonic Assurance Co. v. Sharpe (see above)], or a
general meeting [Flitcroft’s Case (see above)] purport to
authorise it.

But although no dividend can be paid out of capital, yet a
dividend can be paid out of moneys which are certainly not
‘net profits.’

A difficulty has been felt in drawing the line between
capital and net profits, chiefly arising from the various
methods in which depreciation or loss of assets may be dealt
with. The Companies Acts have not required any uniform
system of book-keeping, and consequently it happens that
companies deal with depreciation or loss in many different
ways: some provide out of revenue for depreciation or loss
as it arises; others only partially, or not at all. Given the
same amount of depreciation or loss and the same revenue,
the net profits may apparently be increased or reduced
according to the method employed in dealing with deprecia-
tion or loss. [See Spanish Prospecting Co. (1911), 1 Ch. 92,
as to the meaning of profits].

The question then arises whether dividends can be paid
out of the revenue, or only out of the net profits after taking
from revenue such amount as may be necessary to keep. the
capital intact, The answer depends upon the constitution
and objects of each company [Davison v. Gillies (1879),
16 Ch. D. 347 (n); Dent v. London Tramways Co. (1880),