Do the same restrictions apply to the payment of interest on loan stock and debentures?

No they do not. Payment of interest on loan stock and debentures is not restricted by the requirement to pay only out of retained, distributable profits. Such payments discharge debts of the company and are not a distribution of profits.

What is the procedure for declaring and paying an interim dividend?

This must be done according to the provisions of the articles. Reg. 103 of Table A permits one or more interim dividend to be declared and paid by the directors without reference to the members. All that is necessary is for the directors to make the decision, minute the decision and then arrange for payment to be made. The position is the same under the new model articles.

What is the procedure for declaring and paying a final dividend?

This must be done according to the provisions of the articles. Reg. 102 of Table A provides as follows:

'Subject to the provisions of the Act, the company may by ordinary resolution declare dividends in accordance with the respective rights of the members, but no dividend shall exceed the amount recommended by the directors.'

This means that a final dividend is recommended to a general meeting by the directors, though in a private company it may be done by means of a written resolution. The members can (and usually do) vote for the proposed dividend, or they can reject it and not pay a final dividend or amend the proposed payment in a downwards direction. The position is the same under the new model articles.

In practice, the payment of a final dividend in a private company is rare. All dividends are usually interim dividends.

Please give me examples of resolutions for the declaration of an interim dividend and a final dividend.

Directors' resolution of an interim dividend:

'That an interim dividend for the year ended of p per share

of the ordinary shares of £1 each of the company be paid on to

shareholders registered at the close of business on '

Members' resolution for the declaration of a final dividend:

'That a final dividend for the year ended of p per share

(making with the interim dividend of p per share already paid, a total

dividend for the year of p per share) on the ordinary share of £1 each

of the company being declared payable on to shareholders

registered at the close of business on '

My private company no longer holds annual general meetings. How can dividends be paid?

The simplest solution is for the directors to declare and pay interim dividends whenever it is wished that a dividend be paid. Subject to the money being available this can be done at any time and more than once in a year. If this is done, no final dividends would ever be paid. Alternatively general meetings could be called for the purpose of declaring final dividends or it could be done by means of written resolutions.

Shareholder A sold shares to Shareholder B at about the time that the dividend was declared. Which one gets the dividend?

In the case of a listed company it is decided according to the published rules. In the case of an unlisted company it all depends, and it is one reason why it is important that the dividend resolutions be very carefully drafted. In an unlisted company the date for payment of the dividend is fixed at the time that the dividend is declared. Also fixed at the same time is the date at which names on the share register qualify to receive the dividend. This is obviously important as the sale of shares just before or just after the date may determine whether the buyer or the seller receives the dividend. In practice, the parties in the purchase and sale of shares in a private company often fix the matter between themselves.

 
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