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Paying dividends to Ordinary shares with different nominal values

Paying dividends to Ordinary shares with...

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Company has share capital of:

1 Ordinary share of £1

100 Ordinary shares of £5

100 "A" Ordinary shares of £5

Assuming the Memorandum & Articles allow different dividends to different share classes then the Ordinary and "A" Ordinary shares can have different dividends voted.

But my question is for the (non "A") Ordinary shares, does 1 ordinary share of £1 get the same dividend as 1 ordinary share of £5?

Or does the nominal value affect the dividend as it would do when it comes to voting? 

Replies (16)

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By The Grammar Police
09th Feb 2016 20:32

No. It's a different class of share, so  a £1 shareholder wouldn't participate in a div for £5 unless M&A says otherwise.

 

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By Ruddles
09th Feb 2016 21:44

What has the nominal value got to do with anything?

Dividends are normally expressed as £x per share - doesn't matter if the nominal value is £100 or 0.0000001p.

Likewise, unless - unusually - the Articles provide otherwise, it's one share, one vote. Nominal value is irrelevant.

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By TTID
10th Feb 2016 08:41

Thanks for the comments,

The Grammar Police,

So, just to be clear, the company could pay the following dividends on the same day:

£1000 per share to the Ordinary £1 shares

£50 per share to the Ordinary £5 shares

£100 per share to the "A" Ordinary £5 shares

 

Ruddles,

When you say dividends are expressed as an amount per share and nominal value doesn't matter are you saying the above would not be allowed or are you accepting that the Ordinary £1, Ordinary £5 and "A" Ordinary £5 shares are 3 separate classes of share?

Yes, my reference to the nominal value affecting voting was misleading, apologies. I was merely trying to say (ignoring the "A" shares) that £5 spent would buy 5 Ordinary £1 shares or 1 Ordinary £5 share and therefore buying the £1 shares would give 5 times the voting power, albeit that in this example there is only 1 Ordinary £1share.   

Thanks for both of your comments.

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By Ruddles
10th Feb 2016 09:30

I thought I was clear

The nominal value is completely irrelevant to the amount of dividend paid on a particular class.

You could declare a dividend of 1p per £1m ordinary share and a dividend of £1m per 1p share if you wanted to.

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By TTID
10th Feb 2016 10:20

Sorry if I offended you,

I just hoped to make it clear that where you said "nominal value is irrelevant" that you still accepted that a £1 Ordinary share was a different class to a £5 Ordinary share when they exist within the same company.

Being pedantic, if nominal value is completely irrelevant then they are both just "Ordinary shares" and hence should have the same dividend per share!

Again, apologies if my comments offend.

 

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RLI
By lionofludesch
10th Feb 2016 10:29

Different class

Imho, all shares in a class must have the same NV.

If the NV is different, the shares are different classes.

So the NV isn't completely irrelevant.

But I'm no expert.

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By The Grammar Police
10th Feb 2016 16:16

As Ruddles says (but he missed the point)

The dividend would be paid as 5 pence per share for each Ordy  share of  £1 and (maybe) 12 pence per share for each ordy share of £5 each, BECAUSE THEY'RE DIFFERENT CLASSES OF SHARES. (Just as the "A" ordy is a different class of share)

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Red Leader
By Red Leader
10th Feb 2016 16:29

I'm confused

How can a company have:

1 Ordinary share of £1, AND

100 Ordinary shares of £5?

My companies are all much simpler than this, so maybe I'm not up to speed.

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By Ruddles
10th Feb 2016 16:57

Why the misunderstanding?

Nominal value has usually got nothing to do with anything. But, yes, I did overlook the point about the description - picked up by Lion. All shares in a single class, however described, carry the same rights, nominal value etc. I'll defer to the company law experts but is calling the classes of shares "Ordinary shares of £1 each" and "Ordinary shares of £5 each" any different from calling them "Ordinary A shares" and "Ordinary B shares"? IMO, it's just a description of the class and provided the Articles set out the various rights ...

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Replying to FirstTab:
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By pawncob
10th Feb 2016 17:33

But, as The Grammar Police says, (in his original posting), they're different classes of share, and the nominal value defines those classes.

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Replying to FirstTab:
RLI
By lionofludesch
10th Feb 2016 17:56

Important

Ruddles wrote:

Nominal value has usually got nothing to do with anything. But, yes, I did overlook the point about the description - picked up by Lion. All shares in a single class, however described, carry the same rights, nominal value etc. I'll defer to the company law experts but is calling the classes of shares "Ordinary shares of £1 each" and "Ordinary shares of £5 each" any different from calling them "Ordinary A shares" and "Ordinary B shares"? IMO, it's just a description of the class and provided the Articles set out the various rights ...

The OP wants to know if he can pay different rates of dividend - which he can only do if they are different classes of shares.

In this case, that's why nominal value is important to him.

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By JimFerd
10th Feb 2016 16:55

"But my question is for the

"But my question is for the (non "A") Ordinary shares, does 1 ordinary share of £1 get the same dividend as 1 ordinary share of £5?"

No - they are different classes of shares. So assuming the rights allow it, they can have different dividends.

"Or does the nominal value affect the dividend as it would do when it comes to voting?

The differing nominal values just indicate that they are different classes of shares.

 

I'm no company law expert though - This is just my understanding.

 

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By Justin Bryant
10th Feb 2016 17:50

s629 CA 2006

Says "For the purposes of the Companies Acts shares are of one class if the rights attached to them are in all respects uniform." The default position at common law is that on a winding up shareholders are entitled to a return of capital in proportion to the nominal value of shares held. Thus shares with different nominal values will in principle constitute different classes since the rights attaching to the shares in respect of a distribution are not uniform (unless the articles say otherwise and s542(3) allows shares issued in different currencies (presumably worth the same at the f/x rate on the issue date) to be in the same class although it is unclear to me what f/x rate/date is used re the above winding up point, but I assume it's the issue date f/x rate). Further, in Greenhalgh v Arderne Cinemas [1946] 1 AER 512 (at 515C-D) Lord Greene MR took the view (although the point was not argued) that ordinary shares with different nominal values, though ranking pari passu in respect of voting rights and rights to dividends, constituted different classes. http://www.legislation.gov.uk/ukpga/2006/46/part/17

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By Ruddles
10th Feb 2016 18:06

I get that point now, Lion

If the nominal value is used to differentiate share classes (rather than the usual A, B etc) then of course it is important. Otherwise, it is not

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By Justin Bryant
10th Feb 2016 19:35

Just to be clear re A, B etc. shares

A class of shares will not be created merely by giving a different name to a sub-group of shares if they have the same rights as the other shares. Where a company has only one class of shares, the shares will usually be called ordinary shares. Other share classes, e.g. preference shares, will rank in priority/inferiority in some way to the ordinary shares. Companies may also have several classes of ordinary shares, for example, A Ordinary and B Ordinary, which may each constitute a separate class with rights and liabilities that differ to the other.

If the articles (or the original terms of issue of the shares) do not specify the different dividend rights attaching to the shares, then all of the shares in the capital of the company will rank equally (Birch v Cropper [1889] 14 App Cas 525).

Note also s 549 to s 551 CA 2006 may be in point and an authority to allot shares pursuant to s 551 of CA 2006 may be required for an allotment of a new share class (e.g. re companies formed under CA 1985 or a predecessor Act).

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By TTID
11th Feb 2016 11:15

Thanks Justin for your replies on this matter.

This is a case of an inexperienced director with an equally inexperience and unqualified advisor. 

Shares issued with no paperwork including the SH01 and amendments to Mem & Articles! - This has now been rectified.  

No real reason why they had the different value shares other than the director thought it would be nice!!

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