The Payment Of Dividends And The Issue Of Shares

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The payment of dividends and the issue of shares in return for capital investment are important aspects of company law. As such, there are certain requirements that must be met in order for both shares and dividends to be lawfully issued. These requirements are located within the company’s articles and statute. The Company’s articles “operate as contract between the company and its members” and outline the requirements that the directors must follow in order for a transaction to be lawful.

ABC wish to issue new shares and a pay a dividend using the newly appointed share capital. There is no detail in relation to when ABC were incorporated other than that it was under the Companies Act 2006 (“CA”). There are many versions of the standard
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This is supported by statute which allows directors to issue share capital provided this is sanctioned by the articles. It is possible for the articles of the company to permit different classes of share to be offered and thus enable preferential shares to be offered to Mrs Donald and the Model Articles clearly does this within article 22. There are however, certain caveats in respect of the rights of the existing members which can restrict this provision. The CA gives existing shareholders a right of pre-emption as a means of preventing their voting power from being diluted by the allotment of new shares if the issue is of ordinary shares.

Section 561 determines that existing members must be offered “on the same or more favourable terms a proportion” of the proposed issue equal to the proportion of shares held by the member. The offer must be made to the existing member in writing and must allow at least 14 days for the offer to be accepted or declined. Contravention of this requirement could render the officer(s) involved and the company jointly and severally liable to the member for any loss suffered or expense incurred by their failure to meet this requirement. However section 563 CA does not result in an invalidation of the allotment in the event that it was done infringing section 561 or 662 CA.

Whilst it is possible
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