Company Dividends

The power to set dividend payments is laid out in some detail in Table A of the Companies Act 1985 (as amended),
which are the generally used regulations for management of a company limited by shares.
See for a summary of this act.

Basis for dividend payments
In essence, the resolution to pay a dividend should be taken at a general meeting of the company,
provided that it is apparent that payment of a dividend is justified by the profits of the business available for distribution.
To justify profits, a company must minimally prepare:

  • accounts showing the Balance Sheet
  • Profit & Loss
  • a Statement of Source and Application of Funds.

  • On the basis of preliminary information an interim dividend may be paid,
    again provided that this is justified by the profits of the business.

    Timing of resolutions
    The resolution to pay a dividend should be taken within the period or year in question.
    The resolution may be back dated, provided it is done in good faith (possibly for reasons of preparation of accounts).

    Interim dividends
    According to the Companies Act 1985, a director must not have a loan greater than 5,000 at any one time
    from a company of which they are a director.
    By payment of an interim dividend, thereby reducing the director's loan account,
    it is possible to distribute profits and keep the size of the director's loan account in reasonable proportion
    (given the justification for dividends given above).

    Elective Resolutions of a Private Company
    These were introduced into company law by the Companies Act 1989.
    The purpose is to reduce the red tape surrounding a resolution.
    Elective Resolutions are normally adopted early in a company's life, perhaps just after a company is formed.

    Section 80A Duration of authority to allot shares
    This makes it easier for the directors of the company to allot shares.
    It allows an authority to issue shares to be renewed by a general meeting of the company.

    Section 252 Dispensing with the laying of accounts
    This is part of abolishing the Annual General Meeting, and eliminates the need for presenting accounts at that meeting.

    Section 366A Dispensing with annual general meetings
    This abolishes the need for holding Annual General Meetings.

    Sections 369(4) and 378(3)
    Normally, this doesn't make much difference to small companies as they only have one or two shares.
    However, if you did have more than 10 shares, it allows meetings to be held immediately if you have 90% of the shareholders to agree.
    This is a relaxation from the 95% usually required.

    Section 386 not appointing auditors
    Small companies with one or two shareholders don't legally require auditing.