Q&As

Can a company limited by guarantee pay dividends? If so, in what proportion should they be paid to members?

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Published on LexisPSL on 24/05/2016

The following Corporate Q&A provides comprehensive and up to date legal information covering:

  • Can a company limited by guarantee pay dividends? If so, in what proportion should they be paid to members?

Can a company limited by guarantee pay dividends? If so, in what proportion should they be paid to members?

For the purposes of this Q&A, we have assumed that the company is a company limited by guarantee without a share capital (although a company limited by guarantee and with a share capital may exist, it has not been possible to form such a company or re-register as such a company since 22 December 1980 in Great Britain and since 1 July 1983 in Northern Ireland, see section 5 of the Companies Act 2006 (CA 2006)). We have further assumed that the company is not a charity and not regulated by any regulatory body.

The ordinary meaning of 'dividend' is a share of profits, whether at a fixed rate or otherwise, allocated to the holders of shares in a company (see Henry v Great Northern Rly Co). Therefore, a company limited by guarantee without a share capital is unable to pay dividends in that sense.

However, a dividend is just one category of distribution that may be made by a company. There is no statutory prohibition on the members of a company limited by guarantee participating in its profits and, therefore, on such a company

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