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Ltd Company share structure and dividend payments

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Hi all,

I have a new client, they're a Limied company, a micro entity, the directors and shareholders are husband and wife. The previous accountant did a SH01 and minutes for a gernal meeting to change the structure of the shares as follows:

100 Ordinary shares owned by wife. Each share is £1 and is entitled to one vote per share and is entitles to share equally in dividend payments

100 Ordinary B shares owned by husband. Each share is £1 and is entitled to one vote per share and is entitles to share equally in dividend payments

My client said this was done becuase the husband is a higher rate tax payer and doesn't want to receive dividends over the £2k threshold. I know dividends can be declared to shareholders holding differnt types of shares but as the shares have the same rights on dividend payments is it ok to only pay dividends to the wife? I thought that shares had to have different rights to be able to declare dividends to one shareholder and not the other? I have requested the client to send the company's articles of association to me which are with their solicitor but still waiting...

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By paul.benny
19th Sep 2019 13:57

The Articles of Association are readily available from Companies House without charge. They should make clear the dividend entitlement of each class of share.

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Replying to paul.benny:
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By Msweet
19th Sep 2019 14:15

Will do that thank you

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RLI
By lionofludesch
19th Sep 2019 14:02

If what you say in paras 2 and 3 is so, you might have a problem.

But look at what the new articles actually do say this.

As Paul says, they should be filed at Companies House and available for free.

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Replying to lionofludesch:
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By Msweet
19th Sep 2019 14:23

Thanks for your reply.
The articles I can find for the company on companies house are model articles at the date of incorporation, there has been no amendments and it does not say anything about different rights on different shares

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Replying to Msweet:
RLI
By lionofludesch
19th Sep 2019 14:35

The job's not complete then.

The Articles need filing. Possibly need rewriting too. Has the client's solicitor done this before or is he learning on the job ?

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Replying to lionofludesch:
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By Msweet
19th Sep 2019 14:46

I’ll ask the client if the solicitor has been told about the changes, I don’t think they have and therefore wouldn’t have done any changes to the articles.
Thanks

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Replying to Msweet:
RLI
By lionofludesch
19th Sep 2019 14:57

Maybe start by asking the client where he gets the idea that the company has the power to issue B Ordinary shares.

He may be oblivious to the notion that the power needs to be contained in the Articles.

When I say "may" ............

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By The Dullard
19th Sep 2019 14:16

If the shares have got exactly the same rights, then they're the same class of share, and either somebody has fuched up or somebody has misunderstood something. My money's on the latter.

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Replying to The Dullard:
RLI
By lionofludesch
19th Sep 2019 14:36

Your money seems to be at risk.

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Replying to The Dullard:
By mrme89
19th Sep 2019 15:03

My money is on both.

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Replying to mrme89:
Hallerud at Easter
By DJKL
19th Sep 2019 15:06

Agreed- I do not see them as mutually exclusive.

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Replying to DJKL:
RLI
By lionofludesch
19th Sep 2019 15:19

What odds are on offer ?

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By whitevanman
19th Sep 2019 16:26

In the ordinary course the company is able to pay different dividends on different classes of share but each share of the same class is entitled to an equal amount of dividends. So if there are 100 Ordinary shares and 100 Ordinary B shares different rates of dividend can be paid provided each Ordinary share gets the same dividend as the other Ords and each Ord B share gets the same dividend (if any) as the other Ord B shares.
Of course, even if they were the same class or some other condition meant that both classes were entitled to the same dividend, the husband could waive his entitlement (following all the niceties) and get the same result.

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Replying to whitevanman:
RLI
By lionofludesch
19th Sep 2019 16:50

The problem appears to be that the company had no authority to issue the Ordinary B shares owing to a failure to amend the Articles.

Apart from that, I'm fully in agreement.

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Jennifer Adams
By Jennifer Adams
20th Sep 2019 08:57

Suggest you also read this:
https://www.accountingweb.co.uk/business/finance-strategy/alphabet-share...

"When a company pays a dividend all shareholders receive payment in proportion to their individual shareholdings. For one shareholder to be paid in preference to another or be paid at a different rate, there needs to be either a dividend waiver, or different types of shares permitting different rates of dividend need to be in place; or the underlying shareholdings need to be changed."

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By Clinton Lee
20th Sep 2019 10:48

If the shareholders are going to be taking legal advice, and making changes to share classes or rights of alphabet shares, they may want to bear in mind the 2018 changes with respect entitlement to Entrepreneurs Relief.

To qualify for ER "shareholders must be entitled to at least 5% of the distributable profits and net assets of the company" (that's in addition to existing requirements on share capital, length of ownership & voting rights).

Selling the business may not be at the forefront of their minds now but it's never too early to plan.

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