Is it necessary to pass a resolution to pay a dividend on preference shares?

No it is not usually necessary. The payment of an ordinary dividend and the amount of the dividend is a matter of choice and a resolution is therefore necessary. Subject to the funds being available, the payment of a preference dividend according to the terms of the issue of the shares is a commitment of the company. The directors can just pay the dividends on the due dates. However, as a matter of good practice resolutions are often passed.

What is a scrip dividend?

A scrip dividend is an issue of further shares rather than a cash distribution. Scrip dividends are sometimes attractive to companies because cash is retained in the company. Tax is payable on scrip dividends, but they are a cost-effective way of reinvesting dividends in the company. For this reason they are attractive to some shareholders.

A scrip dividend is a bonus issue of shares. The company must (if applicable) have sufficient authorised but unissued share capital, and such an issue must be permitted by the articles. Sanction by the members in a general meeting is normally required. Sometimes members are given the choice of taking a dividend in this way, rather than in cash. Furthermore, members may be permitted to give the company a standing instruction that all dividends will be taken in this way until the instruction is changed.

Is it compulsory to provide a tax voucher?

Yes it is compulsory. It is a legal requirement that warrants issued in connection with the payment of a dividend must be accompanied by a document usually described as a tax voucher. Such a document must be sent to shareholders when the payments are made by means of bank transfers. A tax voucher must also be sent if the payment is of interest rather than of a dividend. It is now possible to send tax vouchers on an annual basis rather than accompanying each payment.

A tax voucher is a statement addressed to the shareholder (or stockholder) setting out the number of shares (or amount of stock) on which the payment is calculated. It must state the tax credit (if the payment is a dividend), or the tax deducted (if the payment is interest) and the net amount payable. In the case of interest payments, the gross amount payable is also shown and the tax voucher includes a certificate to the effect that the tax deducted will be accounted for to HMRC.

Is the issue of a duplicate tax voucher permitted?

Shareholders may, from time to time, lose tax vouchers and request duplicates. A company may issue a duplicate so long as it is marked that it is a duplicate voucher. No indemnity is necessary.

The shareholders want bigger dividends than the directors are willing to recommend. What happens?

Table A and almost all company articles prevent dividends being paid that are greater than the directors are willing to recommend. There are very good reasons for this. The directors know (or should know) the maximum amounts that can legally be paid, they know what can prudently be paid and they know their plans and the need for working capital. The shareholders can try to persuade the directors to pay bigger dividends, but if they fail they should listen carefully to the directors' reasons for saying no. They might be good reasons. However, the shareholders own the company and they choose the directors. They have the ultimate power to remove the directors and replace them with others who share their views, or at least are willing to do as they are told. If they do this, the new directors will have the same duties and responsibilities as the directors that have been replaced.

Can a shareholder waive a dividend?

Yes this is possible, though you might have difficulty in thinking of circumstances in which a shareholder might wish to do so. One example known to the writer is a majority shareholder who is a director of the company. He is very well rewarded by salary and bonuses and feels it right that only the minority shareholders should benefit from dividends.

On no account should the shareholder just fail to bank his dividend warrant, or write to the company asking for it not to be paid. This would probably result in him incurring a tax liability which would presumably be beyond the limits of his selflessness. Instead he should complete a deed of waiver and submit it to the company. Specimen wording of such a deed may be found in a book such as 'Company Secretarial Practice' published by ICSA Publishing Ltd, or perhaps professional advice should be obtained.

How should we respond to a request to issue a duplicate dividend warrant?

The advantages of paying a dividend by bank transfer include the fact that it is more likely to get into the recipient's bank account and that the company will quickly know if it does not. A dividend warrant sent by post may be lost, delivered to an out of date address or simply not be banked, especially if it is for a small amount. It is normal practice to indicate that warrants must be presented for payment within six months or returned to the company for verification. Some companies charge a small fee for this. There should be no problem in issuing a duplicate warrant at the request of a shareholder, though a check should first be made that the original has not been paid and a stop placed on the original. It is usual to first obtain an undertaking from the shareholder (if the amount is small) or an indemnity (if the amount is large).

A dividend warrant has not been presented for payment. What should we do?

It is tempting to do nothing but this is probably not a good idea. It is an irritant and may be indicative of other problems, such as the death of the shareholder or that he has moved without notifying the company. The absolute minimum should probably be a letter of enquiry but further steps may well be considered if necessary, especially if the amount is large.

The company's obligations will partly depend on its articles. Reg. 108 of Table A states:

'Any dividend which has remained unclaimed for twelve years from the date when it became due for payment shall, if the directors so resolve, be forfeited and cease to remain owing by the company.'

Unclaimed dividends are statute-barred after 12 years in England and Wales and five years in Scotland, though case law is slightly ambiguous. The periods run from the date that the due payment is last acknowledged.

Do the owners of partly paid shares rank for the payment of a full dividend?

It depends on the articles. Reg. 104 of Table A provides that dividends shall be paid according to the amount paid up. So if Mr A has fully paid up his one pound share and Mr B has only paid 50p of his one pound share, Mr A's dividend will be twice the size of Mr B's dividend. Furthermore, Reg. 104 also provides that payment shall be pro-rata to the time during the period in which the money had been received by the company, but if any share is issued on terms providing that it shall rank for dividend as from a particular date, that share shall rank for dividend accordingly. As so often, it is necessary to look at the articles.

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