Anti-Dilution & Dividends Flashcards
What is dilution?
When a company issues more equity shares.
Mechanisms to avoid dilution
-Amend the articles via Special Resolution (at least 75% votes in favour) to make it harder to allot shares, e.g. require a higher threshold of approval when alloting shares.
-Extend the application of pre-emption rights - this is a right of first refusal of shareholders of the company. Amend the Articles to add more application of the pre-emption rights (as set out in s. 561 they don’t extend to shares paid by non-cash consideration).
-SH Agreement - contract amongst SH that contain limits on alloting shares. Any breach can be pursued contractually.
Remedies in case of unfair dilution
s. 994 CA - unfair prejudice claim by members or people who are not yet registered but have been transferred shares.
Distribution of Dividends
It is a company’s business decision to be taken in accordance with the Model Articles. The company must have distributable profits to share to shareholders as dividends. The formula is all accumulated,realised profits MINUS all accumulated,realised losses. Reference must be made to the most revent annual/interim accounts.
MA 30 governs final and interim dividends.
Interim Dividends
It is suggested and decided by a board meeting by the directors of the company (via Ordinary Resolution > 50%).
Interim Dividents do not become debts to the shareholders until they are paid.
Final Dividends
It is suggested by the board via a board resolution and then recommended to shareholders to vote on the proposal via an Ordinary Resolution (>50%).
Final Dividends become a debt due to the shareholders.
Unlawful dividends
If the company doesn’t comply with the prescribed procedure for distributing dividends and if the company distributes more in dividends than it has in profits.
Who is liable?
-Any member who knew or reasonably could have known of the unlawful distribution is liable to repay them.
-Any director who approved this unlawful distribution is liable to pay it back to the company. If more than 1 director - all are jointly and severally liable.
No dividends paid
It is a commercial decision. Depends on the facts of the case.
Preferential Shares Scheme
Shareholders can agree in a SHA on dividend or capital to be distributed a specific % of profit as dividends on an yearly basis or have certain rights with respect to their capital contributions.
These are called Preference Shares when it comes to dividends or capital but carry limited voting rights.
-Preferential rights to dividends: Dividends are fixed as a % and are annually paid before any other SHs.
-Preferential rights to capital: If the company is wound up, then these share holders will receive first their capital contributions before anyone else.
-Limited voting rights - usually no right to vote to the SH.
