When a company wants to return money or assets to its shareholders, it cannot simply hand them out. Company law treats share capital as a fund creditors rely on, so distributions are tightly controlled. As a solicitor advising a company or its directors, you need to know whether a proposed dividend is lawful, how to authorise it correctly, and what happens if the rules are broken — because directors and members can both end up personally liable.
This lesson walks you through the whole picture, from the underlying principle to the practical fallout of getting it wrong.
- Capital Maintenance and Distributable Profits — the principle behind the rules, and how to calculate profits a company can actually pay out.
- The Public Company Net Assets Test — the extra hurdle public companies must clear before distributing.
- Justifying the Distribution by Accounts — which accounts must support a distribution, including initial and interim accounts.
- Final and Interim Dividends — who authorises each, and when a dividend becomes a debt the company must pay.
- Distributions in Specie, Bonus Shares and Preference Dividends — non-cash returns, capitalisation issues, and the order of payment between share classes.
- Consequences of an Unlawful Distribution — the duties in play and the remedies against members and directors.
- Defences and Relief for Directors — how ratification and statutory relief can limit a director's exposure.