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What qualifies as a class of shares for the purposes of issuing a Dividend?

Hi all,

Hope you are well. I'm looking at Alphabet Share arrangements and come across a stumbling block that has caused me to question my current understanding that dividends can be issued at varying rates on different share classes.

Assume that A and B Shares are issued and rank parri passu. It is desired that Dividends are to be issued at differing rates on each Class.

My reading the Companies Act 2006 s629 suggests that the label of A and B Shares is irrelevant where equal rights exist. Does this render any sort of Alphabet Share business impossible, bearing in mind the shares are likely to have to rank parri passu in order to be effective to avoid ITEPA ERS provisions.

That being the case a Dividend's legality would be assessed by reference to a larger required amount of retained profits in the Company because all shares of identical rights would be considered of the same Class.

So my questions are:

  1. What defines a Class of shares for the purposes of issuing a Dividend?
  2. In an Alphabet Share scenario is it possible to issue differing rates of Dividend to each "Class"?
  3. Does a Company incorporated under CA1985 differ?

Cheers,

Chris

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S.629(2)...

... only applies if there are differing rights to dividends in the 12 months following allotment.  if the differing rights to dividends extends beyond the 12 months following allotment, then surely they're different classes?

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07th Feb 2013 13:43

So...

To get my head around this...

If A's and B's are issued (eg. on CH Form SH01) and stated to "rank pari passu" etc with equal participation in Dividends, to my mind that is the "right" referred in s692 and so they have equal rights?

I read s629(2) as an inclusion clause than exclusion clause e.g. that Shares issued with no right to dividend for the first 12 months after allotment but have equal rights to capital and assets on winding up which revert to equal dividend rights after 12 months would be considered of the same Class as other Shares.

 

 

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But isn't the point...

... that the A's and B's won't have equal participation in dividends.  The only purpose of creating two (or more) types of share is to make them different from each other in one (or more) respect.

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07th Feb 2013 13:57

.

George Attazder wrote:

... that the A's and B's won't have equal participation in dividends.  The only purpose of creating two (or more) types of share is to make them different from each other in one (or more) respect.

So what would be your narrative on the SH01 disclosed on the public record in a scenario where say, there were A's and B's with rights to capital, assets on wind up and dividends?

Would you specify in what proportion each class had a right to Dividends? Or are the "rights" to defined by the practices that follow the issue of Shares?

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The shares have...
a right to participate equally in any dividends declared for the class.a right to a vote, ranking pari passu with other ordinary shares of any class.a right to participate in the capital on a winding up, ranking pari passu with other ordinary shares of any class.

Once upon a time you could have just copied this stuff out of the articles of association.  The point is though, that they are generally all given exactly the same rights other than that they can receive dividends on different terms.

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avatar
07th Feb 2013 14:25

George....

George Attazder wrote:

a right to participate equally in any dividends declared for the class.a right to a vote, ranking pari passu with other ordinary shares of any class.a right to participate in the capital on a winding up, ranking pari passu with other ordinary shares of any class.

Once upon a time you could have just copied this stuff out of the articles of association.  The point is though, that they are generally all given exactly the same rights other than that they can receive dividends on different terms.

Very helpful. Many thanks for the input =)

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