260 17: Capital maintenance and dividend law Part E Capital and the financing of companies
The second concern of the court, where there is more than one class of share, is whether the reduction is
fair in its effect on different classes of shareholder.
If the reduction is, in the circumstances, a variation of class rights the consent of the class must be
obtained under the variation of class rights procedure.
Within each class of share it is usual to make a uniform reduction of every share by the same amount per
share, though this is not obligatory.
The court may also be concerned that the reduction should not confuse or mislead people who may deal
with the company in future. It may insist that the company add 'and reduced' to its name or publish
explanations of the reduction.2.3.1 Confirmation by the court
If the court is satisfied that the reduction is in order, it confirms the reduction by making an order to that
effect. A copy of the court order and a statement of capital, approved by the court, to show the altered
share capital is delivered to the Registrar who issues a certificate of registration.3 Distributing dividends
Various rules have been created to ensure that dividends are only paid out of available profits.A dividend is an amount payable to shareholders from profits or other distributable reserves.3.1 Power to declare dividends
A company may only pay dividends out of profits available for the purpose. The power to declare a
dividend is given by the articles which often include the following rules.
Rules related to the power to declare a dividend
The company in general meeting may declare dividends.
No dividend may exceed the amount recommended by the directors who have an implied power in their
discretion to set aside profits as reserves.
The directors may declare such interim dividends as they consider justified.
Dividends are normally declared payable on the paid up amount of share capital. For example a £1 share
which is fully paid will carry entitlement to twice as much dividend as a £1 share 50p paid.
A dividend may be paid otherwise than in cash.
Dividends may be paid by cheque or warrant sent through the post to the shareholder at their registered
address. If shares are held jointly, payment of dividend is made to the first-named joint holder on the
register.Listed companies generally pay two dividends a year; an interim dividend based on interim profit figures,
and a final dividend based on the annual accounts and approved at the AGM.
A dividend becomes a debt when it is declared and due for payment. A shareholder is not entitled to a
dividend unless it is declared in accordance with the procedure prescribed by the articles and the declared
date for payment has arrived. This is so even if the member holds preference shares carrying a priority
entitlement to receive a specified amount of dividend on a specified date in the year. The directors may
decide to withhold profits and cannot be compelled to recommend a dividend.
If the articles refer to 'payment' of dividends this means payment in cash. A power to pay dividends in
specie (otherwise than in cash) is not implied but may be expressly created. Scrip dividends are
dividends paid by the issue of additional shares. Any provision of the articles for the declaration and
payment of dividends is subject to the overriding rule that no dividend may be paid except out of profits
distributable by law.Key termFAST FORWARD