Do dividends legally have to be paid in proportion?

stefanboro

I feel stupid for asking this as I feel the answer is obviously yes.

When dividends are paid by a company, do they legally HAVE to be paid in proportion? I.e. per share?

I know that a bonus or a rights issue obviously has to but, after seeing how a few former client companies operated within the practise I used to work in I know for a fact that despite having the same class of shares the members were paid dividends in different proportions - and that is not me being not understanding that some were paid a small amount of salary etc.

Monsoon

The answer is indeed yes.

Generally speaking the only time you don't pay divs in equal proportion is if there is a dividend waiver in force. A DW needs to be put in place before the divs are paid, and ought to have a good commercial reason for doing it (i.e. not just "because then person A will avoid higher rate tax on dividends he doesn't need to receive, and person B needs the money, and they can receive it tax efficiently as a div as opposed to a higher salary"). HMRC can challenge it if it's obviously tax avoidance.

If a company isn't paying divs in proportion, then one presumes the unpaid divs have been recorded as a liability to the shareholder(s) who didn't take as much.

Newbie

Yes assuming they are ordinary shares, if say A & B shares have been issued then its sometimes different. remember board minutes.

stefanboro

Monsoon - thank you!!

I knew what the answer must have been and considered the different treatments in the financial statements / tax returns but you have confirmed it for me.

Honestly, this forum is a bastion of sound advice at a time when I literally have so much responsibility and yet nobody to advise me or to bounce ideas off.

apple

Newbie wrote: »

Yes assuming they are ordinary shares, if say A & B shares have been issued then its sometimes different. remember board minutes.

so what can be a reason not to pay in proportion?

deanshepherd

And the prize for oldest thread resurrection of the year goes to..