We have a set of accounts prepared to 30.4.22, the directors have proposed that 25% of the 30.4.22 years profit to be paid to the shareholders, but which shareholders as the shareholders changed at 2.5.22, can the dividends be voted after 2.5.22 but to the shareholders at 30.4.22 .
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Listed companies' dividends are based on the record date - ie a preannounced date that determines eligibility.
In this case, directors need to determine record date as part of their proposal. From what you say, the dividends were proposed after the change in shareholding and therefore it is the new shareholders that are entitled to receive it.
Thanks Paul, I had a feeling that that might be the case, I wondered whether there was an option to pay the dividend to shareholders at a certain date prior to the change, if not then it might be down to using dividend waivers and all the trouble that brings.
You need to distinguish between the person entitled to the dividend legally as opposed to the person entitled to it in equity. If I sell my shares [***] div the buyer is entitled to keep the first dividend he/she receives. If I sell ex div then the buyer must account to me for that dividend. So you need need to examine the terms under which the shares were transferred.
Well calling someone a 'div' is hardly polite (even if you're a scouser), but as I'm sure you're aware the world's least intelligent AI (as used by Sift) has a simple list of 'bad words' (not necessarily rude) that is 100% American in its view of spelling.
BTW I'll happily bow to your correction (if warranted) but I wasn't aware that a private company declaring a dividend was unable to determine the distribution date of its choosing?
"I wasn't aware that a private company declaring a dividend was unable to determine the distribution date of its choosing?"
That is not what I was saying. If I sell my shares to you on 1 June and you are registered as the new owner on 2 June and if the company pays a dividend on 3 June (to shareholders then registered), then the dividend is paid to you. If the sale was ex div then you should forward the dividend to me otherwise you keep it.
Conversely if the company pays the dividend to shareholders registered as at 1 June and the sale is c u m div that dividend then I get the dividend but most forward it to you. It is reasonable to assume that we would both know that the dividend is impending and adjust the sale price according to who we decide should have the benefit of it.
Apologies ... I shouldn't have included that portion of my response in the reply to you. This site is bad enough without me bu88ering up the connections!
I fully understand the principles of [***]/ex div sales ... but my query related more to the OP's original question ("can the dividends be voted after 2.5.22 but to the shareholders at 30.4.22?") - which I translated into asking whether a private company, when declaring a dividend, is able to determine a distribution date of its choosing (including a date prior to the declaration)?
If so, does the distribution date not determine who is a shareholder at that date (at which point entitlement to div kicks in as per your point)?
"I wasn't aware that a private company declaring a dividend was unable to determine the distribution date of its choosing?"
That is not what I was saying. If I sell my shares to you on 1 June and you are registered as the new owner on 2 June and if the company pays a dividend on 3 June (to shareholders then registered), then the dividend is paid to you. If the sale was ex div then you should forward the dividend to me otherwise you keep it.
Conversely if the company pays the dividend to shareholders registered as at 1 June and the sale is c u m div that dividend then I get the dividend but most forward it to you. It is reasonable to assume that we would both know that the dividend is impending and adjust the sale price according to who we decide should have the benefit of it.
Sorry, but how does this cut'n'paste of your 13:17 post relate to my question asked at 14:28 (to which your 'copy post' purports to respond)?
It was a slow motion double post.
I don't think that dividends can be back dated, but the directors can choose the date on which they extract the list of members from the register who are to receive the dividend. But I don't think that they can choose an early date to save the selling shareholders from the consequences of a bad bargain.
"It was a slow motion double post" ... wow, Sift the gift that keeps on giving!
I don't disagree with your conclusions.
Just wasn't sure as to whether the distribution date could be retrospective (from when it is declared) - although even that wouldn't help the selling shareholders (assuming there has been at least some sort of due diligence and a SHA).
Thanks I would hazard a guess that the share transfer paperwork isn't that expansive. I will ask the question though.
Come div?
Why does Aweb use USA word censorship?
Am I allowed to say Brit? According to one forum it is an offensive term
Edit
I see the offensive word now spelt with spaces
Is aaaaaacumaaaaaaa div not more that you are entitled to all dividends declared but not yet paid rather than entitled to the next dividend paid?
That's the more tricky option.
When you talk about the directors and shareholders - are these the same people?
That's not the point - it's who the buying and selling shareholders believed was entitled to the dividend. Was the price ex div or c div?
The answer is probably that the parties didn't properly consider (or at least didn't document it) before buying and selling the shares.
If it was never discussed then the answer is clear. The new shareholder gets the dividends.
Surely only on point if the div was actually declared before sale, if not then ex or aacumaa is surely academic.
@ CW2012 (OP).
The apparent problem is certainly NOT insoluble. The means of remedying the situation can be determined by (i) inspecting the minute of the directors’ meeting at which the dividends were proposed and (ii) considering that minute in the light of the names of all the directors and shareholders (current and immediately prior to the recent share transfers).
Notwithstanding my above comments, frankly this is more of a legal (and, more strictly, a company legislation) matter. Assuming that all parties are “of one mind”, I can think myself of a variety of ways of remedying the situation (by way of one or two meetings).
This matter being one which I am sure has exercised the minds of company secretarial agencies on many previous occasions, who I am sure can provide a definitive answer to the anomalous position, I would recommend that the company seek advice from one of those companies (readily googled).
I am unsure as to what extent you are personally being required to resolve the client company’s problem: suffice however to say that, since you are presumably not qualified as a company lawyer, it is best (so as not to be accused rightly or wrongly of proving guidance for which you are not qualified) that you simply recommend, in as “neutral” way as possible, the client company to seek legal advice (suggesting that perhaps a company secretarial agent may be able to provide that advice).
Basil.
With respect, basil, the answer is not a question of legal. Ex or [***] will be a matter of contract of sale. If there is no contract, then all rights attached to the shares transfer with the shares at the point of transfer.
Absent any other agreement, there can be no other outcome.
If everyone is of a like mind across the existing shareholders there is indeed no problem, like you say - minutes of previous meetings are often rediscovered when initially thought lost.
If the Directors and the shareholders are different groups on the other hand, then the existing shareholders have a real problem on their hands with the Directors that are running the business, they aren't exactly acting in their interests.
@ SteveHa (your post at 14.53).
“Tax is always taxing”, in their post at 13.24, asked:-
“Who do the Directors want to receive the dividends, the old or the new?”
Such question, in the context of the OP’s initial question, was a reference to the Directors’ previously proposing the dividends at issue.
In reply at 13.40, the OP responded (crucially) “The old”.
The situation therefore is one in which all parties were of one accord as to the intentions, but there has been a subsequent ERROR, in terms of the share transfers, which have produced a situation in which the dividends will legally be required to be paid in a DIFFERENT form from what all parties AGREED.
I fully appreciate your account of the legal position re the share transfers, but where, as in this case, there is an error inherent therein, then the law requires such error to be rectified: the Courts will always rightly seek to apply the intentions of the parties, and if necessary disregard paperwork which conflicts therewith.
I must respectfully thus disagree with your post - in essence “substance over form” must prevail: in this case, my suggestion of paperwork which will effectively enable the intentions of all parties, should be readily achievable; and I reaffirm that LEGAL action should enable this to be achieved (a competent company secretarial agency should probably, IMHO, be able to deal with this, but if not so, then a company law solicitor should be engaged (at the risk of apparent conceit, I would feel myself able to prepare the necessary paperwork, but would decline so doing for risk of being accused of acting outwith the field in which I am qualified).
Basil.
The directors' intentions or wishes are neither here nor there. The former shareholders might have anticipated the impending dividend and set the price of the deal accordingly. If so they have already benefited. If they didn't but should have then they have seller's remorse. The directors can't save the former shareholders from the consequences of making a bad bargain. Their duty is to the current shareholders only.
@ MUL. My previous posts are based on the premise that there is a disconnect between (1) what ALL the parties agreed and (2) what transpired: such indeed is my understanding of the OP’s initial question (and later posts).
If, of course, such premise is incorrect (your last post provides an example of where such premise is not correct) then by definition my responses would be different.
Anyone (I reaffirm that this should be in the legal field) charged with the task of providing a resolution to the OP’s problem would necessarily ascertain ALL relevant facts. Such are the limitations of questions on this, and other, forums.
Basil.
Fora vs Forums:
Forum in Latin means a meeting-place; whereas in English it often just means a meeting.
The plural of more than one meeting-place is "fora", but the plural of more than one meeting is "forums".
Thank you Hugo, fora, I never knew that, I would have gone with forums, I wont any longer.
Basil
"My previous posts are based on the premise that there is a disconnect between (1) what ALL the parties agreed and (2) what transpired: such indeed is my understanding of the OP’s initial question (and later posts)."
I simply don't see anything posted to suggest that there is any disconnect here as you suggest -apologies if i missed it. I would say the op has been slightly silent ref exactly what the directors and shareholders "want" albeit the comments about wanting to ensure earlier shareholders get their piece of the pie suggests to me that the company is most likely simply seeking a fair and reasonable split based on what profits were generated for sharholdders at the time they held shares and there was presumably previously agreement ref dishing out profits - i am probably worse than anyone for skim reading and posting gibberish though so i could easily be missing the plot here.
From the subsequent discussions I have now had it appears that there was a meeting 16th March pre year end to agree a dividend to the shareholders, from that I think it would apply to those in place at that date as that was the intention, again though the detail is a bit light, one thing I can be sure of though is that future meetings will be suitably noted and motions agreed.
I wouldn't worry, I'm sure they will find a minute from that 'meeting' somewhere if required.
All that such minutes might evidence is that an error might subsequently have occurred. They won't rectify anything.
If there was an error and all parties wish to seek a remedy, the company could of course simply pay the dividend to the new owners, the new owners pay it to the old and the tax falls where it falls (maybe the new-to-old payment could reflect that, it's up to them).
The tax position won't change unless the error is rectified in law, which is what Basil is talking about doing. Whether rectification is as simple (and cheap?) as Basil suggests is not something I will comment on.
@ CW2012 (OP).
Thank you for your 9.13 post today. Your reference to the 16 March 2022 meeting confirms my previous understanding of the arrangements.
I can only respectfully refer you back to my initial post yesterday (at 14.49) recommending that you arrange for the client company to ask a company law solicitor (or a company secretarial agent if they are able and willing to do so) to prepare the appropriate “rectifying” paperwork.
Frankly, I would surmise (albeit this would depend upon the wording of the paperwork thus far) that ONE document, signed by all parties
(effectively qualifying the dividends at issue, as proposed by the Directors) may be sufficient in itself (albeit, admittedly upon my donning a “quasi-legal hat”, it may be that dividend waivers are required, in accordance with that document; and a formal minute may also be required).
As I said at the outset, just be careful that you cannot be accused of giving legal advice in a field in which you are not qualified.
Basil.
Do we know who was at the meeting? If it didn't include the new and old owners, I wouldn't be concluding that there had subsequently been a mistake. (If this was open market transactions, the fact that there had not been a dividend when the shares changed hands would be reflected in the amount the new owners paid the old.)
If the sale price for the shares were based on “the fact that there had not been a dividend when the shares changed hands”, and subsequently dividends had been declared based upon a decision prior to that sale of which the purchasers were unaware, then the purchaser’s rights would be protected by terms in the Share Sale Agreement (assuming of course that there was one). In that respect, the decision to pay dividends to the previous shareholders would be no different from the company’s (say) paying large bonuses, after the share sale, to the directors who were in office prior to the sale (such example being of course based on the premise that the “old” directors continued in office after the sale).
These, and other, matters would be considered by the company law solicitor whose appointment I have throughout recommended. In the (albeit, on the strong balance of probabilities, unlikely) event that the essence of the terms of the sale is met by the new shareholders’ retaining the dividends in accordance with the new shareholdings, then, by definition, such dividends should be paid on that “new” basis; and hence no “rectification” would be required. To reaffirm, obtaining company law guidance is essential to ensure that “justice is done” (the “mechanics” for achieving that “justice” depend entirely upon circumstances – see my post yesterday at 18.11 for the implied caveat).
Basil.
Can the Directors choose to pay a former shareholder a dividend to the disadvantage of a new shareholder?
No!
Unless...
1. The new shareholder agreed at the point of purchase that any dividends declared before [date] should go to the old shareholder and there is evidence of this e.g. (a share sale agreement) - the Ex Div point made earlier.
2. The meeting to approve the Interim dividend (it has to be an interim dividend as shareholders approve final dividends) was held prior to the sale date of the shares AND the record date agreed in THAT meeting was BEFORE the sale date of the shares AND there is no ambiguity about whether that meeting actually happened on that date
3. The articles of the company permit the directors to do it (unlikely)
In practice: the Directors can do what they want - they would however be personally liable if they paid Dividends to the 'wrong' shareholder and the 'wrong' shareholder objected. So they need to ensure that the New shareholder has agreed/indemnified them if they pay dividends to a former shareholder where there is any ambiguity about the record date.
They MUST check the articles - often (not always) Directors can declare interim dividends but final dividends need approval of shareholders.
OP, when I first saw the question I assumed the share transfer was otherwise than by sale. But nearly every respondent is now talking about the transaction as if it were a sale.
Would you put me out of my misery - what actually happened?
It's getting more and more like a whodunnit - with the added piquant twist of and whatdidtheydo?
Does it matter? Subject to the donor reserving the right to the impending dividend, does not a gift entail the donee receiving all future dividends?
It might provide a bit of context. The OP has been coy about the reality of the scenario (not even answering basic questions like "are the directors (the) shareholders?" that was asked earlier). Coyness breeds suspicion/leaves the door open for assumption (stated or otherwise)... which in turn can lead to misunderstanding/confusion.
If, say, the transfers were to trusts for minors [just to pick one simple example of the many available and that is just as plausible as any assumptions made by others], then Basil's solution would, I believe, be tantamount to a breach of trust. Not something an accountant should recommend.
But no, I agree - it doesn't actually change the answer, which answer is IMHO pretty close to what SteveHa said.
