Multiple Directors with differing dividends
Discussion
I'll obviously seek professional advice but as it's the weekend I am hoping to appeal to the knowledge here.
Consider the situation where there are 4 Directors of a company. Let's say, for ease, that there is £400k to be distributed between them.
2x Directors want to take £20k salary and £23k dividends with the rest remaining in the company, ring fenced for later.
2x Directors want to take £20k salary and £40k dividends with the rest remaining as above.
Each Director has an equal take in the business. How would you handle this?
Thanks
Consider the situation where there are 4 Directors of a company. Let's say, for ease, that there is £400k to be distributed between them.
2x Directors want to take £20k salary and £23k dividends with the rest remaining in the company, ring fenced for later.
2x Directors want to take £20k salary and £40k dividends with the rest remaining as above.
Each Director has an equal take in the business. How would you handle this?
Thanks
Ok, so not really recommended.
The alternatives are that we all agree the same figure (doable) and leave the surplus in the business.
Any complications with having a parent company with all the monies distributed to companies owned by the individual directors?
Company ABC Ltd - Owned by 4 directors £400k
Company A - Director A receives £100k then £20k salary, £23k dividend and the rest left in the business
Company B - Director B receives £100k then £20k salary, £23k dividend and the rest left in the business
Company C - Director C receives £100k then £20k salary, £40k dividend and the rest left in the business
Company D - Director D receives £100k then £20k salary, £40k dividend and the rest left in the business
The alternatives are that we all agree the same figure (doable) and leave the surplus in the business.
Any complications with having a parent company with all the monies distributed to companies owned by the individual directors?
Company ABC Ltd - Owned by 4 directors £400k
Company A - Director A receives £100k then £20k salary, £23k dividend and the rest left in the business
Company B - Director B receives £100k then £20k salary, £23k dividend and the rest left in the business
Company C - Director C receives £100k then £20k salary, £40k dividend and the rest left in the business
Company D - Director D receives £100k then £20k salary, £40k dividend and the rest left in the business
Assuming they all have ordinary shares, they each swap them for equivalent number of ordinary A shares for shareholder 1, ordinary B shares for shareholder 2, etc.
Different dividends can then be paid to A, B, C & D shares if required.
Different dividends can then be paid to A, B, C & D shares if required.
Edited by PurpleMoonlight on Friday 1st July 16:39
PurpleMoonlight said:
Assuming they all have ordinary shares, they each swap them for equivalent number of ordinary A shares for shareholder 1, ordinary B shares for shareholder 2, etc.
Different dividends can then be paid to A, B, C & D shares if required.
Correct. Alphabet shares as we do. Keep it simple. SET IT UP PROPERLY.Different dividends can then be paid to A, B, C & D shares if required.
Edited by PurpleMoonlight on Friday 1st July 16:39
Why £20k salary? Why not £8,060?
PurpleMoonlight said:
Assuming they all have ordinary shares, they each swap them for equivalent number of ordinary A shares for shareholder 1, ordinary B shares for shareholder 2, etc.
Different dividends can then be paid to A, B, C & D shares if required.
^^^ This. Same voting rights, different dividend rights.Different dividends can then be paid to A, B, C & D shares if required.
Ozzie Osmond said:
AMDBSTony said:
Spaghetti shares are one way of doing this.
Well, that's clear then....They can be good for employees or directors as they do not attract employer nor employee NI and are taxed as per dividend rules.
Note that they can only be paid from profit made.
Will need your accountant to set them up for you.
And HMRC are rather suspicious of them as they know they can be used to pay people in lieu of salary. In their mind, that is not what dividends are for and they can and sometimes will challenge complicated share structures which seem to have been set up expressly with this in mind.
Indeed, they actually have special sections on Corporation Tax returns and company disclosure requirements in the formal accounts forcing the directors to state categorically the make up of such structures.
Indeed, they actually have special sections on Corporation Tax returns and company disclosure requirements in the formal accounts forcing the directors to state categorically the make up of such structures.
don29 said:
Do the new dividend rules make this route far less attractive than previously?
The new rules do make dividends less attractive but they may still offer tax savings over salaries. However, as I keep saying, blatantly replacing salary payments with dividend payments is a sure fire way to have HMRC sniffing about your business.And it must always be remembered that there are many circumstances when paying dividends are just not possible, or sometimes even illegal.
AMDBSTony said:
Ozzie Osmond said:
AMDBSTony said:
Spaghetti shares are one way of doing this.
Well, that's clear then....They can be good for employees or directors as they do not attract employer nor employee NI and are taxed as per dividend rules.
Note that they can only be paid from profit made.
Will need your accountant to set them up for you.
I've never heard of Spaghetti shares.
Jockman said:
Our Alphabet shares are fully paid up shares with FULL voting rights and written in to our Shareholder Agreement. They are exactly the same type as our old shares.
I've never heard of Spaghetti shares.
The whole idea of "alphabet" shares (i.e. shares referred to as "Class A" or "Class B" etc") is that the different classes of shares denote differing dividend entitlements and different voting rights. If the the different categories DON'T allot different rights etc to the different classes of shareholders, there is little point in going down this route. I've never heard of Spaghetti shares.
There may be very valid BUSINESS reasons why different classes of shares exist in a company - and if those reasons can be justified to HMRC, then HMRC will not have an issue.
Where HMRC gets annoyed is when it seems to them that the only or main reason the different share classes were created by the company was to avoid paying tax.
Eric Mc said:
Jockman said:
Our Alphabet shares are fully paid up shares with FULL voting rights and written in to our Shareholder Agreement. They are exactly the same type as our old shares.
I've never heard of Spaghetti shares.
The whole idea of "alphabet" shares (i.e. shares referred to as "Class A" or "Class B" etc") is that the different classes of shares denote differing dividend entitlements and different voting rights. If the the different categories DON'T allot different rights etc to the different classes of shareholders, there is little point in going down this route. I've never heard of Spaghetti shares.
There may be very valid BUSINESS reasons why different classes of shares exist in a company - and if those reasons can be justified to HMRC, then HMRC will not have an issue.
Where HMRC gets annoyed is when it seems to them that the only or main reason the different share classes were created by the company was to avoid paying tax.
The main area our Advisers highlighted were that the share amounts should not be frivolous and that they must be discarded without reservation ie, if the wife runs off you can't have them back. Full voting rights too.
In the Shareholder's Agreement you are permitted to divide into Majority Shareholders and Minority Shareholders with slightly different rules but that is the only concession I can find.
If OP goes down this route he should also undertake a sanity check on his Articles of Association to ensure compatability with them.
Gassing Station | Finance | Top of Page | What's New | My Stuff