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DEFENDANTS’ APPEAL.

Winborne, J.

While defendants not only assign as error the several conclusions of law upon which the judgment below is founded, and the judgment, but except to and assign as error the findings of fact made by the court upon which the conclusions of law are based, yet in their brief *490 they challenge only the correctness of the conclusions of law and the judgment. Hence, under Rule 28 of the Rules of Practice in the Supreme Court, 221 N. C., 554, the exception to the findings of fact will be taken as abandoned, leaving .for consideration the challenge to the conclusions of law and judgment. As to these, and upon the facts found, we find no error of which defendants may complain. C. S., 1178. Gannon v. Mills Co., 195 N. C., 119, 141 S. E., 344.

The statute relating to corporations, chapter 22, Consolidated Statutes of North Carolina, section 1178, provides that: “The directors of every corporation created under this chapter, shall, in January of each year, unless some specific time for that purpose is fixed in its charter, or by-laws, and in that case at the time so fixed, after reserving, over and above its capital stock paid in, as a working capital for the corporation, whatever sum has been fixed by the stockholders, declare a dividend among its stockholders of the whole of its accumulated profits exceeding the amount reserved, and pay it to the stockholders on demand. . .

The court finds as a fact that at the beginning of the year 1940 the corporation had a surplus of approximately $44,075.00, and at the end of year 1941 the surplus was approximately $43,156.14. Also while the court further finds that prior to 1940 the stockholders paid only small dividends and the earnings were permitted to remain in the treasury of the company and be used in whatever way the corporation needed them, and mainly in the increase of stock of goods, it also finds that no corporate resolution had been adopted with respect to this surplus. Moreover, it appears that no corporate action was taken by the stockholders until after the hearing of this action in the court below, when, at the suggestion, and with the consent of the court, a special meeting of stockholders and of directors was called at the instance of defendants, the stated purpose of which was “to establish the working capital of this company for the year 1942, and to designate by resolution a reserve as working capital for the years 1940 and 1941.” And the court finds that at such meeting the stockholders by majority vote set aside as working capital for the year 1941 an amount which is more than the surplus at the end of that year — before taxes had been paid and a reserve for bad debts set up. Upon this the court in effect holds that the defendants as majority stockholders did not act in good faith. Therefore, if it be conceded that at such meeting the majority stockholders, acting in good faith, could have set aside a working capital after the institution of this action, the ruling below is tantamount to holding that no such action has been taken in good faith. The effect of this is that no valid corporate action has been taken with respect to setting aside a working capital either before or after the institution of this action. Consequently, the *491 accumulated profits are available for dividends, and tbe directors are controlled by tbe provisions of C. S., 1178, and bave no discretion witb respect to tbe performance of tbe duty imposed. Cannon v. Mills Co., supra. But it appears tbat tbe plaintiff seeks to bave paid in casb only tbe profits for tbe years 1940 and 1941, and there is, therefore, no error in tbe judgment directing tbe payment of casb dividends from tbe profits for those years.

Plalntief’s Appeal.

Plaintiff assigns as error tbe refusal of tbe court to order paid as casb dividends tbe whole of tbe profits for tbe years 1940 and 1941, as shown in tbe annual statements rendered at tbe end of those years, respectively. However, tbe court finds tbat tbe profits shown on tbe 1940 statement are subject to income tax, to allowance for bad debts, and to inventory adjustment; and tbat tbe profits shown on tbe statement for tbe year 1941 are subject to income tax and to deduction for bad debts, thereby reducing tbe total profits for those years to $4,753.83. Manifestly, tbe income tax, allowance for bad debts, and tbe inventory adjustment are properly deductible in order to ascertain tbe net profits. However, we are of opinion tbat tbe court erred in allowing ten per cent of tbe net accumulated profits for 1940 and 1941 to be deducted to cover probable expenses. Tbe order should bave directed tbe payment of tbe full amount of $4,753.83. Tbat this may be done without impairing tbe capital structure of tbe corporation is, on this record, patent. For after paying this amount as dividend, there still remains of tbe surplus as of tbe end of tbe year 1941, tbe sum of $38,302.31, on a paid-in and outstanding capital of $7,800.00, as shown by facts found by tbe court to which no exceptions are presented.

As tbe court rendered no judgment witb respect to tbe payment of tbe accumulated profits prior to tbe year 1940, we make no ruling witb regard thereto, and leave tbe matter for future determination in this action, if any of tbe parties so move.

On defendants’ appeal — Affirmed.

On plaintiff’s appeal- — Modified and affirmed.

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How this case has been treated — in progress