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An unusual type of dividend waiver - but does it work?

An unusual type of dividend waiver - but does...

I want to pay each of my shareholders different amounts of dividends on a completely discretionary basis.

I dont want to have alphabet shares as there's too many shareholders. I also do not want the administative issues and uncertainty of asking for waivers annually.

If the shareholders agree (which they do), can I simply have one class of share, give each shareholder one share each, and place a provision in the articles which says shareholders are NOT entitled to equal dividends and shall only receive that amount which the directors determine in respect of each of them?

Does this work?

Any problems?

Any alternative solutions?

Many thanks,

Ray

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14th Oct 2010 14:25

How many shareholders

are there.

Will each shareholder have aright to equal shares on dissolution or on sale of the company?

Will voting rights be equal? Presumably yes if all the shares are of one class.

If  sufficient shareholders gang up, the decision of the directors can be overturned.

It seems to me that in your circumstances a shareholder agreement is virtually a vital necessity.

 

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By raylevy
18th Oct 2010 10:40

these shareholders have no rights other than divi

Hi, thanks for your response.

We'll have a managing shareholder with all the rights (voting, capital etc).

This group of shareholders, which will number say between 100 - 200 people, will have no rights to vote, no rights to capital, just a non-equal, discretionary dividend.

So, can I waive the inequality in the articles?

thanks

Ray

 

 

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18th Oct 2010 12:46

I think

your suggestion is unworkable.

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By raylevy
18th Oct 2010 13:34

great. but why....?

Thanks.

Any steer as to why not? Or just a gut feel.

Gut feel, by the way, is a little less helpful.

thanks,
Ray

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18th Oct 2010 15:45

Various reasons

1. The artificiality of the concept.

2. I assume this is either an umbrella company or some form of commission based business or av wheeze to limit  NIC payable by or for employeees/ers, If the first of these and any one shareholder is lossmaking it would limit the dividend payable to some or all of the others.

3.etc etc

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By raylevy
18th Oct 2010 15:58

its not a wheeze, really

the shareholders are unconnected to the company. They are simply third party referers of work. Instead of receiving commissions, they receive dividends (long story) but the professional rules relating to these particular shareholders dont allow for commission payments, but would have no problem with dividends.

So, no scam, just a method of A paying B.

I dont understand what this means: "any one shareholder is lossmaking it would limit the dividend payable to some or all of the others".

However, conceptually, I still dont see a difference with asking 100 shareholders for a dividend waiver each year, or simply asking them to waive up front in the articles. Legally, its the same thing, no?

Ray

 

 

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19th Oct 2010 10:09

you have said

each dividend is likely to be different. OK I can see from your explanation that losses are unlikely.

 How about a discretionary trust being the shareholder and distributing income from the trust in accordance with the wishes of the managing shareholder.

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