Unpaid share capital and Dividends

Unpaid share capital and Dividends

Didn't find your answer?

I have been trying to find information in relation to unpaid share capital and declaring a dividend and receiving a dividend payment, but cannot find anything on this.  Situation is that the sole Director has 100 unpaid shares showing as Other Debtors in the balance sheet with corresponding entry in Called up Share Capital.  Disclosure note has been added in the accounts regarding Issued and alloted but share capital remains unpaid.  But are there any consequences regarding the shareholder declaring and paying himself a dividend but the share capital remains unpaid?

Replies (10)

Please login or register to join the discussion.

Scalloway Castle
By scalloway
30th Jun 2016 23:21

None that I can think of.

Thanks (0)
Replying to fawltybasil2575:
avatar
By Techstartup
01st Jul 2016 18:41

It is per s104 Basil.

Thanks (0)
avatar
By Cloudcounter
01st Jul 2016 10:28

Why doesn't he just pay for the shares?

Thanks (1)
Portia profile image
By Portia Nina Levin
01st Jul 2016 10:48

Basil seems to be confused between the meanings of ultra vires, unlawful and illegal.

Thanks (0)
Portia profile image
By Portia Nina Levin
01st Jul 2016 11:09

Incidentally the regulation 104 to which Basil refers does not preclude the payment of dividends to shares that are unpaid, it simply says that if there are 100 £1 shares that are 20p paid up and 100 £1 shares that are 50p paid up, a dividend of £5,000 can be paid on the second 100 shares, whilst a dividend of only £2,000 is paid on the first 100 shares. CA 2006, s 581 and 641(4)(b)(ii) are very useful provisions.

The key advice when reading the articles is to make sure you understand what they say.

Thanks (0)
Replying to Portia Nina Levin:
avatar
By Techstartup
01st Jul 2016 17:25

As per the Articles of Association:

Calculation of dividends:
42.1: Except as otherwise provided by the articles or the rights attached to shares, all dividends must be:

42.1.1: Declared and paid according to the amounts paid up on the shares on which the dividend is paid, and
42.1.2: Apportioned and paid proportionately to the amounts paid up on the shares during any portion or portions of the period in respect of which the dividend is paid.

42.2: If any share issues on terms providing that it ranks for dividend as from a particular date, that share ranks for dividend accordingly.

So does that mean then the dividend is not ultra vires then in that case as per 42.2 as it is issued but not fully paid?

Thanks (0)
avatar
By User deleted
01st Jul 2016 17:15

@Basil

I would respectfully disagree with you, in the light of the following points:

1. The link that you have kindly provided within your post 9.27 (whilst may be relevant if the client company was incorporated before 2009 and still living with the old Articles) may well be irrelevant. This is because that link refers to Table A and CA/85, both having gone the dinosaur’s way almost a decade ago. The law with regard to distributions which currently applies is CA/06 Part 23 s.829 et seq. (here http://www.legislation.gov.uk/ukpga/2006/46/part/23). It says nothing about distributions made on partly paid or unpaid shares. Two references that are available within the Act aren’t of great help either. S.3(2) which says that members’ liability is limited to the amount, if any, unpaid on the shares held by them where the company is “limited by shares”. The other one is s.542 (here http://www.legislation.gov.uk/ukpga/2006/46/section/542 ) which again only says the allotment must be for a fixed nominal value, presumably because each share ought to have a nominal value.

The next logical step would then be to look up the Articles. If the client has no bespoke Articles, then the ones to be referred to are the Model Articles for Companies Limited by Shares (here https://www.gov.uk/guidance/model-articles-of-association-for-limited-co... ). The only reference to partly paid shares appears in Article 21 which basically prohibits companies from issuing partly paid shares.

2. In a case involving Joe Bloggs & His Dog Ltd, it is highly likely that shares may have already been allotted (as a subscriber or otherwise) and the sum due appears as a debt, courtesy double entry system of bookkeeping. In the case of subscriber shares, the participator will already have committed (in the process creating a contractual obligation) to pay for the shares via Memorandum at the time of incorporation. As a result, the director participator may eventually be the debtor in the books, directly or indirectly (reference ‘other debtors’). Should this be the case, the shares would then be construed as fully paid up with the debt outstanding for the corresponding sum, as a separate item not having anything to do with the share capital as such.

3. Dividend is paid to members whose names appear on the Register of Members on the date voted, whether through a Board or a Members’ resolution. Members who have been allotted shares will surely find their names on the Register of Members (regardless of whether there appears a debit to their account or not).

Therefore, I would think dividend will be due and need to be paid in this case.

Thanks (0)
Replying to fawltybasil2575:
avatar
By Techstartup
01st Jul 2016 21:00

So basically illegal dividends have been declared then and will need to be redeclared, as well as the prior year accounts to be updated to reflect this?

Thanks (0)
Replying to fawltybasil2575:
avatar
By User deleted
02nd Jul 2016 10:16

@Basil

Whilst thanking you for your comments I must admit that I'm an occasional lurker on here as a learner as opposed to being an authority on anything. That having been said, I would think that you may have misunderstood the OP's case in this instance.

The view, that the shares are partly paid or unpaid, appears to be misconceived. Partly paid shares are those which have been issued as such, and they get paid up when calls are made. Unpaid shares, as yourself may very well know, are those in respect of which calls have been made but not yet paid up. In the OP's case the shares appear to be subscriber (to the Memo) shares and given the reference in the OP to 'other debtors', share capital may have already been created in the books. The shares will, therefore, be construed as paid up ones.

As regards the 'Register of Members', subscribers to the Memo will automatically have been entered on there, without having to make any allotment as such (unlike when further shares are issued), given that the subscriber ought to contractually agree to take up the shares at the time of formation. Indeed, dividends are paid to those members whose names appear on the Register of Members (which is a statutory register) when dividends are voted/declared.

In the OP's case even if the Articles are the old ones, still the shares are not unpaid or partly paid. They are indeed fully paid; regardless of whether there is debt outstanding for a corresponding sum, which is irrelevant.

The OP may decide to pass a special resolution and alter the Articles immediately as there may be other irritants within the Articles such as the need to hold annual general meetings etc.

And having had this great conversation with you I must say I'm done with this thread.

Thanks (0)
avatar
By petestar1969
04th Jul 2016 13:06

Just move the other debtor into petty cash, where it should have been in the first place, and stop messing about and wasting people's time.

Thanks (1)