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Dividend planning question

Dividend planning question

I have a recently incorporated corporate client subject to the Model articles of association. There are two shareholder directors each owning 50% of the ordinary shares of the same class. There are sufficient distributable profits and the directors wish to pay a dividend to one shareholder and not the other. Is it just the case of completing a written resolution which specifies which shareholder should receive the dividend plus a dividend voucher?

Would the answer be different if the directors decided to pay (say) £75,000 to one shareholder and £25,000 to the other?

Assuming the facts are the same but the company is older and Table A applies, can the directors simply complete a written special resolution adopting the Model Articles instead of Table A – them pay the single dividend?

If this is the case, why bother with dividend waivers or splitting shares into different classes?

Any advice would be much appreciated. Thank you.


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By Ruddles
01st Mar 2016 20:32

The answer is simple

This is not the case.

Thanks (1)
01st Mar 2016 21:23

Which is why you bother with dividend wavers.

Thanks (1)
02nd Mar 2016 07:39

Some thoughts..

Hi Donna,

Dividend waivers are often subject to challenge by HMRC. 

When you say there are sufficient distributable profits what do you mean by this? Are they sufficient to cover both the dividends I.E. including the one which is to be waived.

A more prudent approach may be to issue alphabet shares in the same proportions to the ordinary shares thus allowing more intricate dividend distributions.

Completely agree with Ruddles, this is not the case as you have suggested.

You may also find the following link useful;

Many thanks,


Thanks (1)
02nd Mar 2016 08:09

Waiver dangers

daleryans wrote:

Dividend waivers are often subject to challenge by HMRC. 

I think that this is largely apocryphal.  Something that course lecturers like to bang on about to justify their fee, but rarely arises in practice.

Successful challenges tend to centre around maintaining inadequate documentary trail (ie deed of waiver before dividend paid) or there being insufficient reserves to pay the waived dividend.  Get the details right and the challenge rapidly vaporises.

Of course alphabet shares make the admin easier, but some course lecturers will scaremonger those as well.

With kind regards

Clint Westwood.

Thanks (2)
02nd Mar 2016 10:56

Dividend Planning

Thanks very much for your feedback.

I am aware of the issues with dividend waivers.

I believe our client has been advised by a lawyer that clause 30 (4) of the model articles gives the flexibility to pay a dividend to one shareholder. We have not come across this so wanted to check before querying it with them.

30 (4) says "Unless the shareholders' resolution to declare or directors' decision to pay a dividend, or the terms on which shares are issued, specify otherwise, it must be paid by reference to each shareholder's holding of shares...."

So is it just a case of getting everyone to agree and documenting the decision not to pay a dividend pro rata to shareholdings?

Has anyone come across this or a situation where perhaps the Articles have been amended to allow it?


Thanks (0)
By Ruddles
02nd Mar 2016 11:07

I've seen that point raised before

The legal opinion that I've heard is that the Article referred to does not, and should not, give directors the right to declare, willy-nilly, dividends payable to whichever shareholders they deem appropriate. Every shareholder is legally entitled to their pro-rata share of any dividend declared (you can be assured that I'd be kicking up stink if I found that dividends were being paid to other shareholders but not to me) - unless the shareholder has waived that entitlement.

The majority view is that, once the directors are in possession of a valid waiver, then they may declare a dividend payable only to the remaining shareholders.

Thanks (0)
02nd Mar 2016 17:02

Alphabet shares and dividend waivers both have a place....

HMRC dont like dividend waivers but that is no reason not to go down that route. They will query if done too many times.

Best to change to Alphabet shares. The Articles need to be amended to facilitate this.

For more information and to see exactly what needs to be done and the benefits or otherwise in doing so see the articles given below. Written in checklist format.

Dividend waivers - get the details right updated as at December 2015

Alphabet shares - get the details right written Dec 2015



Thanks (1)
03rd Mar 2016 11:28

Dividend Waivers

JAADAMS wrote:

HMRC dont like dividend waivers but that is no reason not to go down that route. They will query if done too many times.

Thank you for bringing that link to my attention, I was rather busy with the tax season at the time (smile)

Thanks (0)
02nd Mar 2016 19:22


I don't like waivers.  I don't like alphabet shares really, but they're much better than waivers.

Thanks (1)
03rd Mar 2016 11:21


Just a quick thank you to you all for your thoughts and advice. Much appreciated.

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