is a company paying a dividend via a subsidiary to avoid paying a shareholder in the parent company?

pay a div via a subsidiary to avoid paying a sharh

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There is a silent shareholder in parent company A which has 3 additional shareholders.

company A has a subsidary called company B. Both companies are small companies and file their own accounts.

All but one Shareholders in company A were issued shares in company B

company A stopped issuing dividends (even though there were/are distributable profits available)

now dividends are being distributed from company B (which was a dormant company not doing anything for many years)

the ratio of the shares held by shareholders in company A to B is the same except for the one shareholder who was not issued shares in company B

this seems like a way to avoid paying dividends to the one shareholder who does not have shares in company B

but is that legal?

any informal help/advice would be appreciated.

thank you.

Replies (11)

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By Tim Vane
28th Jun 2016 20:18

The shareholder should speak to a lawyer.

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Replying to Tim Vane:
Out of my mind
By runningmate
28th Jun 2016 20:41

Tim Vane wrote:

The shareholder should speak to a lawyer.


I agree.
Also do you mean that B is a subsidiary of A? If so then A will be receiving dividends from the shares it holds in B.
How is B making profits if it was dormant? Has it acquired the business previously operated by A?
There are all sorts of questions here which cannot be dealt with on an internet forum.
Take proper paid for legal advice.
RM
Thanks (1)
Replying to runningmate:
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By robbrowne
28th Jun 2016 20:51

Hello,
yes B is a subsidiary of A
A doesn't have any shares in B according to filing at CH.
part of the business may of have been transferred from A to B, A is perhaps providing a service for B now ....
i don't know the other shareholders (2 directors and 1 employee) don't want to talk or meet.

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Replying to robbrowne:
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By User deleted
28th Jun 2016 20:55

Plot thickens....B is a subsi but A doesn't hold any shares!

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Replying to User deleted:
RLI
By lionofludesch
28th Jun 2016 21:42

taxguru wrote:

Plot thickens....B is a subsi but A doesn't hold any shares!

How did that happen ?

Thanks (0)
Replying to robbrowne:
Out of my mind
By runningmate
29th Jun 2016 08:44

robbrowne wrote:

Hello,
yes B is a subsidiary of A
A doesn't have any shares in B according to filing at CH.
part of the business may of have been transferred from A to B, A is perhaps providing a service for B now ....
i don't know the other shareholders (2 directors and 1 employee) don't want to talk or meet.


In short it appears that you have no clue what the position actually is.
You cannot give (or receive) sensible advice until more facts have been established.
RM
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By User deleted
28th Jun 2016 20:44

So one shareholder is silent and rest are all violent!! May be you're trying to say they are directors.

Now if the subsi is dormant how will they distribute dividends?

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Replying to User deleted:
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By robbrowne
28th Jun 2016 20:53

it was dormant .... active now ... thanks.

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Replying to robbrowne:
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By User deleted
29th Jun 2016 07:16

From what I've understood the business of A has been transferred to B to avoid having to pay dividends to one of the shareholders of A. Depending on more facts this may have a) company law consequences (in that there is an aggrieved shareholder) and b) tax consequences as well. However, A should have received the sale proceeds when it sold its business, part of which the single shareholder too should be entitled to?

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By Democratus
29th Jun 2016 09:06

There's something rotten in the state of Denmark.

It could be that "B" is partially owned by A and the balance by the rest, but that wouldn't stop A getting it's share.

It could be that A owns voting shares in B but there is no distributioon associated with them (odd but possible i suppose) and the other shares in B are the ones attracting a dividend.

It could be a complete b*llocks and the lone shareholder in A is being taken for a ride.

It's really one for a lawyer - with all the facts available.

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Out of my mind
By runningmate
29th Jun 2016 09:17

My guess is that the position is something like this:-
W, X, Y & Z own the shares in A Ltd.
X, Y & Z own the shares in B Ltd.
A Ltd had been carrying on a trade, making profits & paying dividends to the 4 shareholders.
Now B Ltd is carrying on that trade, making profits & paying dividends to the 3 shareholders in B Ltd.
So W has lost out.
If so then (contrary to what the OP states) B Ltd is not a subsidiary of A Ltd.
There needs to be some investigation as to whether B Ltd has acquired the assets & trade of A Ltd without paying A Ltd the proper market value - hence unfairly disadvantaging W.
A solicitor's advice is required.
RM

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