Equal dividends

[jgmadkit]

This might be a dumb question but I need to ask.

Ltd company with 2 director shareholders with equal shareholdings.

Can 1 director receive a dividend payment whilst the other doesn't?

Cheers, John

[plasticpig]

Theoreticaly yes. But it is not straight forward. You can do this if your re classify the shares and have one class of share which pays dividends and one which dosent. It is also dependent on your Memorandum and Articles of Association. You need to speak to your accountant and solicitor.

[Smartie]

can't one shareholder just choose not to receive his dividend? Thought this wasn't a problem.

[2 sMoKiN bArReLs]

..or one shareholder could sign a waiver

[2 sMoKiN bArReLs]

Smartie said:

can't one shareholder just choose not to receive his dividend? Thought this wasn't a problem.

[plasticpig]

2 sMoKiN bArReLs said:

..or one shareholder could sign a waiver

Only if this is allowed under the Memorandum and Articles of Association.

[jgmadkit]

Ok, thanks peeps, I'll check those documents out.

Cheers, John

[john_p]

Google "preference shares" I think

[sleepezy]

does the other director not wish to receive the div permanently, or for tax reasons or is it just because the co. cannot afford to pay the second div?

if the latter it may be easier to 'pay' the div and then for the D to immediately pay the div back as a loan - thereby maintaining the equality of shareholdings/drawings etc. however i would have thought this would have generated a tax charge to the D (tax not my thing tho)

[jgmadkit]

I checked in the Articles and there's no provision for this

The other director doesn't need the money and will be taxed at the higher rate if he takes it. No great shakes, Gordy just gets more in his back pocket.

Cheers, John

[roadsweeper]

You just need to restructure the shareholdings so each of you holds difference classes of shares. For example, you hold Class A shares and your partner holds Class B shares. You stil lhave equal eight within the company, but you can pay a dividend against a particular class of share. This allows either of you to receive a dividend without the other partner having to receive one too. This is how my company is set up and it gives us great flexibility.

[jgmadkit]

Cheers Roadsweeper, I think that is the way to go, it would suit our situation much better.

I don't suppose I could be cheeky and ask for the wording that needs to be put in the Articles could I?

Cheers, John


>> Edited by jgmadkit on Wednesday 5th April 17:01

[2 sMoKiN bArReLs]

jgmadkit said:

I checked in the Articles and there's no provision for this

..but on the other hand, does it prevent it?

[billsnemesis]

Companies Act requirements are that any dividend must treat all holders of any particular class of shares equally. For that reason you cannot split a dividend unequally between two shareholders unless they hold different classes of shares

If the MemArts don't provide for this at first you can always change them with a special resolution (75% majority of shareholders voting).

There are some technical rules about how this change operates but what you need to achieve is a change so that there are two or more classes. I have set up a few companies where each shareholder has their own class of shares. The only difference between them is that they are called "class A", "class B" etc. This allows each class to be issued its own dividend.

To avoid abuse dividends require 100% concensus under the shareholders agreement.

[Eric Mc]

No need to do anything complicated with the current shareholdings. Just ensure that the other shareholder signs a waiver diosclaiming any rights to the dividend they would otherwise be legally entitled to.

[2 sMoKiN bArReLs]

2 sMoKiN bArReLs said:

..or one shareholder could sign a waiver