The irregular dividend is not really irregular, it's just less.
Remember that there is no need for a dividend to actually be paid out so for the irregular dividend that is (say) 30% of the normal dividend on the same number of shares simply credit the dividend to the DLA and allow the director to draw against it as required. (one dividend, everyone's happy).
Worth noting though is that for tax purpsoes whether the dividend is taken from the DLA or not, it is deemed as having been paid... Sorry, pretty obvious I know but you don't know who else might be reading this and not realise.
Simplest approach is to declare dividends then the dividends are distributed, say 70/30 depending on the class of share.
The funds are credited to the directors DLA's and then funds withdrawn as required giving the impression of smaller, adhoc dividends where the reality is a more robust sollution.
Form AR01 needs annually to show the breakdown of each class of share.
hope that helps,
kind regards,
Shaun.
p.s. my response followed on from yours Melanie, the "ish" at the start was no reference to Marks that had not been posted when I started writing. Sorry for any confusion.
-- Edited by Shamus on Thursday 21st of February 2013 10:49:52 PM
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Had a query from a client and I am not sure what the answer is - hoping someone can help!
He has recently set up a limited co with 3 directors. Currently all the shares are allocated between the 3 and are ordinary shares. He wishes to ensure that the rights of the shares are as follows:
1 director to have no dividend payment
1 director to have regular dividend payments
1 director to have infrequent (TBC) dividend payments
Now the regular one is straightforward. I was thinking that the non-dividend one could simply be a change of classification to voting status only. However, I don't know what to do about the infrequent payment shares. Does it need to be a separate classification or can it simply just be minuted in a Board Meetinng to declare dividends to director A and none to director B?
dividends are a preset share of profits. The amount of the dividend can be variable but you cannot have a situation where the dividend sometimes pays and sometimes doesn't even though a dividend for that class of share is declared.
What you can do is have a class of share peculiar to each director and the dividends on those shares fit with the given criteria.
From the sound of the question you were half way down that path anyway and just needed confoirmation that you were giving the correct advice.
Worth noting is that you only have 4000 characters to include all of the neccessary details in the companies house annual return so whatever you come up with for the various share types, keep it succinct.
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
1. Non paying shares simply change the class on. 2. Normal shares do nothing 3. Irregular shares set up a new classification with hardcoded specifics of the dividend payment e.g. payable only on the annual div declaration and at a rate of 30% of the full declared div amount - that kind of thing?
The situation is such - 2 of the directors have plenty of funds from other companies, one of them wishes not to have dividends but wants control and voting rights, and obviously a split should the company go bust, the other just wants a dividend 'every now any then', maybe annually or interim/annual. The 3rd director, this is almost his only source of money so they want to declare dividends for him say, every quarter, and he will have more divs on a regular basis than the other two.
Thanks Mark, but can the category of share description cope with dividend flexibility? e.g the directors may decide the variable share gets paid say £500 at interim stage and £20 at full stage irrespective of what percentage this may represent (i.e. needs to be flexible). Furthermore, they may decide to pay the ordinary shareholder every quarter but may decide one year not to pay the variable one at all. Can this either be addressed by:
A. A flexibility clause in the share class i.e. "The Board will decide the frequency and proportion of dividend payable to class X shares" OR B. A declaration at the Board meeting instead saying "Dividends declared = £500 to class A, £0 to class X"
Whole point in alphabet shares is gives total flexibility of declaring dividends.
If you have 3 shareholders and they each have a different class eg A, B and C then you can declare dividends for each totally independent of each other which you cant do if they all have say A class shares.
If they all have the same class then they are each entited to dividend per share depending on how many shares they have. Individual shares can be waived but sufficient reserves need to be available to pay the dividends if they hadnt waived them otherwise they are illegal
eg
Assume each shareholder has 1 share.
Say after tax have £50k of distributable profits and shareholder A wants £20k, Shareholder B wants £25k and shareholder C wants £5k.
Then if they each have different classes of share then shareholder A can get dividend of £20k, B div of £25k and C div of £5k. This totals £50k and as they are separate classes each dividend has been declared separately this is fine.
If they all had say class A shares then div of £25k per share would need to be declared so shareholder B gets what they want. shareholder A could waive £5k and shareholder C could waive £20k so they all get paid what they want and still just £50k. However there has to be £75k available reserves as £25k per share has been declared therefore £75k (£25k x 3) should be available irrespective of wavers. As this isnt the case then the divs are illegal.
Hi Mark. Thanks so much. Yes that's perfect. I understand there's no need to issue new shares, just to reclassify the ones they have via the normal process.
