Dividends and different classes of shares

Dividends and different classes of shares

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Hi

just after a bit of advice in relation to alphabet shares and the dividends that can be voted for them.  we currently have an enquiry into this area for a different client so i would appreciate some clarification for a different client.

below is and example company to simplify the situation:

ABC Ltd

shareholding :50 A shares, 50 B shares

year 1 post tax profits - £100k, Class A dividends voted £50k, class B Dividends voted nil.  therefore net assets c/fwd £50k.

year 2 post tax profits - £100k, class B Dividends to be voted - Nil

This would mean that the company would have P&L reserves of £150k.  in terms of the dividends available to the class A shares would it be £50k (i.e. 50% of the yr 2 profits as they had already had 50% of yr 1 profits) or £75k (50% of total P&L reserve)

thanks 

Replies (4)

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By johngroganjga
04th Nov 2015 10:02

You don't mention what the Articles say!

But presumably the point of having alphabet shares is that the Articles permit different levels of dividend to be paid on each class. If they didn't the Year 1 dividends you describe would not have been possible.

So if that's right it's entirely up to the company what dividend they pay and which class of shares they pay it on. I am not sure what guidance you are expecting from anyone on here. 

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By taylorstaxservices
04th Nov 2015 10:23

Reserves

In order to pay a legal dividend on the A shares my understanding is that there would need to be reserves available to make the same payment across all shares, if required.  I thought it was then the choice of the Alphabet shareholders whether this was paid or not?

I think this means that the available dividend in year 2 is £75K, being half of the available reserves.

I assume that the shares all rank pari passu in all rights other than income.  

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By n_french
04th Nov 2015 11:27

Thanks for your comments

We have had an enquiry into a different client in relation to the allocation of dividends and they are making the arguments in line with Kevin's comments (although it has been sent off to the technical team for further clarification 4 months ago and they have not yet got back to us).

Therefore this has made us question some of our other clients using alphabet shares and our previous thoughts on the subject which were those of John.

 

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By MBK
04th Nov 2015 13:33

@n-french

Re your most recent post.

The issue with your enquiry is not about whether the dividends can be paid - they can be, as John has pointed out. The issue with the enquiry is about who should pay tax on the dividends actually paid. 

In the situation described HMRC would try to invoke the settlements legislation if (eg) husband owns the A shares and wife owns the B shares.

 

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