Ordinary Shares and distributing a dividend

[Martin P]

If 100 (ordinary, paid) Shares are issued to Shareholders in a Company, would a dividend need to be distributed in proportion to the Shares issued?
E.g. a £1000.00 dividend is to be paid to Shareholders
Shareholder 1 = 80 shares = £800.00
Shareholder 2 = 8 shares = £80.00
Shareholder 3 = 8 shares = £80.00
Shareholder 4 = 4 shares = £40.00
Q: Am I right in thinking, I cannot overpay or underpay a Shareholder - the dividend needs to be distributed evenly?

 

[elaine@cheapaccounting]

it is normal to distribute in accordance with share holding.

A share holder can forego the dividend if they want

 

[Zahidparvez]

Distribute profit as their share holdings, so share holder A will get 8 out of every 10

 

[Stevej]

Yes Martin you are correct. HMRC can get quite shirty about this and tax a shareholder on a dividend even when he tries to forgo it!
In order to avoid this the shareholder should waive the dividend in writing BEFORE the dividend is declared. You can waive the right to receive dividends in advance before they are declared but not in arrears. As I said, you cannot force the shareholder to take the dividend but HMRC may still tax them as if they had.
Also if one shareholder may benefit by another waiving their dividend , for example husband and wife situations - this can also create problems and additional tax
There is an interesting article here highlighting these issues http://www.accountingweb.co.uk/cgi-bin/item.cgi?id=162821&d=1032&h=1019&f=1026

 

[Martin P]

Cheers Elaine.
Another question if you don't mind?...
Shareholders 2, 3 and 4 will transfer half of these Shares back to Shareholder 1 when their initial purchase price of Shares, have been covered through dividend payments. Can a Shareholder refuse to accept a dividend, so they can hang on to a greater amount of Shares for longer? It is in Shareholder 1's interest to pay dividends to Shareholders 2, 3, and 4 as soon as the Company can afford to do so. Shareholder 1 is the only director.
I had a thought... could Shareholders 2, 3 and 4 provide a loan, (is that possible as they are not directors?), but then am I right in thinking that the Company would need to repay this loan as an expense, reducing the profit for dividend payments?

 

[Martin P]

Zahid and Steve, thank you also, you replied as I was typing a reply to Elaine

 

[Stevej]

Shareholders 2, 3 and 4 will transfer half of these Shares back to Shareholder 1 when their initial purchase price of Shares, have been covered through dividend payments. Can a Shareholder refuse to accept a dividend, so they can hang on to a greater amount of Shares for longer? It is in Shareholder 1's interest to pay dividends to Shareholders 2, 3, and 4 as soon as the Company can afford to do so. Shareholder 1 is the only director.
I had a thought... could Shareholders 2, 3 and 4 provide a loan, (is that possible as they are not directors?), but then am I right in thinking that the Company would need to repay this loan as an expense, reducing the profit for dividend payments?

What is the advantage to them in refusing the dividend and holding on to the shares if the maximum that they will ever get is their purchase price?

They can provide a loan but what will that achieve?

When the company repays the loan it simply reduce the loan debt in the Balance Sheet that was created when the loan was received. It will not affect the profit

 

[elaine@cheapaccounting]

Cheers Elaine.
Another question if you don't mind?...
Shareholders 2, 3 and 4 will transfer half of these Shares back to Shareholder 1 when their initial purchase price of Shares, have been covered through dividend payments. Can a Shareholder refuse to accept a dividend, so they can hang on to a greater amount of Shares for longer? It is in Shareholder 1's interest to pay dividends to Shareholders 2, 3, and 4 as soon as the Company can afford to do so. Shareholder 1 is the only director.
I had a thought... could Shareholders 2, 3 and 4 provide a loan, (is that possible as they are not directors?), but then am I right in thinking that the Company would need to repay this loan as an expense, reducing the profit for dividend payments?

good lord - no offence but I think this is a wee bit complex

Is this set up in existence already - if not then do try to make things a bit simpler.

Can I suggest you work on the following (general) rules

Shareholders own part of the company and enjoy the benefit from the business growth

Others would invest in the business for a fixed / defined return through a loan

 

[Martin P]

What is the advantage to them in refusing the dividend and holding on to the shares if the maximum that they will ever get is their purchase price?

They can provide a loan but what will that achieve?

When the company repays the loan it simply reduce the loan debt in the Balance Sheet that was created when the loan was received. It will not affect the profit

Hi Steve, half 50%, of Shareholders 2, 3 and 4's Shares, would be transfered back to Shareholder 1 (director), after they have received enough dividend payments to cover what they paid for the original amount of Shares.
E.g. Shareholder 2 could start with 8 Shares of 100, having paid £8.00 for these. Once he has recieved £8.00 in dividend payments, he would transfer 4 Shares back to Shareholder 1 (director), and keep 4 Shares for the life of the Company. The benefit of Shareholder 2 refusing a dividend would be so that he would continue to have 8 Shares in the Company for subsequent quarters when the dividend is to be paid... Might be totally wrong here.
And I now see about the loan, Cheers again

 

[Martin P]

good lord - no offence but I think this is a wee bit complex

Is this set up in existence already - if not then do try to make things a bit simpler.

Can I suggest you work on the following (general) rules

Shareholders own part of the company and enjoy the benefit from the business growth

Others would invest in the business for a fixed / defined return through a loan

Hi Elaine
This sort of set up has been proposed, - I am trying to get my head around it. It would work out better (for me) to get half of these Shares back, even if it is slightly complicated. The loan suggestion isn't going to happen in this case (unfortunately). Proposed Shareholders want a slightly higher shareholding to start with to regain their capital, then they are happy to reduce their shareholding after it has been repaid.