Help with dividends on share acquistion

Discussion in 'Accounts & Finance' started by D.G Holdings and Procurement, Apr 2, 2013.

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  1. D.G Holdings and Procurement

    D.G Holdings and Procurement UKBF Newcomer Free Member

    56 3
    Hi all,

    I am after a bit of advice before taking the plunge with regards to acquiring a share in a medium sized profitable company. I appreciate that all the specific financials and legals need to be taken care of in due course but just wanted to get my head straight with regards to the future should I partake in the deal.

    I am looking at acquiring a 5% share in a company whose accounts currently show a net worth of £505,000 approximately.

    My question is with regards to the dividends that may be potentially payable to me based on this as I will not have another role in the company just a shares interest in the business itself.

    How would dividends be decided based on the share detailed above? and would it be something that has to be filed with companies house regarding the respective dividend paid by the companies accountant or through my own?

    I apologise if this is in the wrong section or a bit ambiguous however this is the first time I have been looking into acquiring shares in another well established company.

    Thanks in advance
     
    Posted: Apr 2, 2013 By: D.G Holdings and Procurement Member since: May 15, 2011
    #1
  2. Scalloway

    Scalloway UKBF Legend Free Member

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    Dividends are decided by the company's directors. For a dividend to be paid the company must have distributable profits. All shareholders of a class receive dividend in proportion to their shareholding.
     
    Posted: Apr 2, 2013 By: Scalloway Member since: Jun 6, 2010
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  3. D.G Holdings and Procurement

    D.G Holdings and Procurement UKBF Newcomer Free Member

    56 3
    So if the company has 100 ordinary shares and I take a 5% share does that mean that the dividend percentage I receive will be 5% of the determined figure as agreed by the directors?
     
    Posted: Apr 2, 2013 By: D.G Holdings and Procurement Member since: May 15, 2011
    #3
  4. Scalloway

    Scalloway UKBF Legend Free Member

    16,412 3,471
    You are correct.
     
    Posted: Apr 2, 2013 By: Scalloway Member since: Jun 6, 2010
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  5. D.G Holdings and Procurement

    D.G Holdings and Procurement UKBF Newcomer Free Member

    56 3
    I see. With regards to the recording of dividends paid I assume that the company will have to record the amounts paid in their company accounts that are filed annually and I will also have to ensure the correct tax is paid on my dividend received ( which my accountant would look into for me )
     
    Posted: Apr 2, 2013 By: D.G Holdings and Procurement Member since: May 15, 2011
    #5
  6. Ola1

    Ola1 UKBF Regular Full Member

    472 54
    Yes, you'd report your dividends on your self assessment. And your accountant would deal with that for you once you give them all your income details for the year.

    One other thing, as its a large investment, you ought to have a Lawyer look over the papers because even ordinary shares can have special properties attached to them.

    The articles of a company are down to that company.
     
    Last edited: Apr 2, 2013
    Posted: Apr 2, 2013 By: Ola1 Member since: Feb 18, 2013
    #6
  7. D.G Holdings and Procurement

    D.G Holdings and Procurement UKBF Newcomer Free Member

    56 3
    Thanks for that. I fully appreciate that this is not a deal to be taking light heartedly and will ensure that the required legal and financial personnel look into the finer aspects of the deal for me. I just wanted to clarify what my position would be and the responsibilities I have as well as the company when it came to accounting practices.
     
    Posted: Apr 2, 2013 By: D.G Holdings and Procurement Member since: May 15, 2011
    #7
  8. Ola1

    Ola1 UKBF Regular Full Member

    472 54
    The directors, not the shareholders, bear responsibility for running the company, that includes reporting income and payments, all filings accounts, etc.
     
    Posted: Apr 2, 2013 By: Ola1 Member since: Feb 18, 2013
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  9. D.G Holdings and Procurement

    D.G Holdings and Procurement UKBF Newcomer Free Member

    56 3
    Thanks again. Also what does the company have to do with regards to recording issued payments?

    Do they have to record them in their annual accounts which are then submitted to companies house? and does this mean that the details of my dividend payment would be audited by them in conjunction with HMRC?
     
    Posted: Apr 2, 2013 By: D.G Holdings and Procurement Member since: May 15, 2011
    #9
  10. Ola1

    Ola1 UKBF Regular Full Member

    472 54
    Dividends are shown in the accounts filed with companies house and hmrc.

    Companies house does not audit your dividend, that's not their function.


    Under self assessment, it is you the tax payer, who has a responsibility imposed by law to declare all your income to HMRC. An to encourage the tax payer to do so, hmrc does fun things like "investigations"
     
    Posted: Apr 2, 2013 By: Ola1 Member since: Feb 18, 2013
    #10
  11. Alpha30

    Alpha30 UKBF Newcomer Free Member

    32 1
    Also be aware that a Director can easily decide a no dividend policy and your 5% could be worthless if you don't have a vote on the board...
     
    Posted: Apr 3, 2013 By: Alpha30 Member since: Nov 3, 2012
    #11
  12. D.G Holdings and Procurement

    D.G Holdings and Procurement UKBF Newcomer Free Member

    56 3
    As far as I am aware the shares will be ordinary shares with voting rights and entitle me to dividends.

    Thanks for the advice though.
     
    Posted: Apr 3, 2013 By: D.G Holdings and Procurement Member since: May 15, 2011
    #12
  13. SBlundell

    SBlundell UKBF Enthusiast Full Member - Verified Business

    752 185
    What Alpha30 is saying is that the directors may decide to pay no dividends in any given year (or all years!) & therefore you'll be entitled to 5% of £0.00.

    Just be aware there's no obligation to pay any dividends & with a 5% shareholding you're unlikely to be able to apply any force to the other shareholders / directors.

    Of course theoretically if the company decides not to pay a dividend it's to instead increase the company's value - therefore increasing your future investment value rather than current cash in your hands.
     
    Last edited: Apr 3, 2013
    Posted: Apr 3, 2013 By: SBlundell Member since: Aug 10, 2011
    #13
  14. D.G Holdings and Procurement

    D.G Holdings and Procurement UKBF Newcomer Free Member

    56 3
    I see. Thank you for the all the replies.
     
    Posted: Apr 3, 2013 By: D.G Holdings and Procurement Member since: May 15, 2011
    #14
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