Dividends and distributions
Dividends and distributions

The following Corporate guidance note provides comprehensive and up to date legal information covering:

  • Dividends and distributions
  • What is a distribution?
  • What is a dividend?
  • Restrictions on distributions
  • Financial requirements on a distribution
  • Procedure for the declaration and payment of dividends
  • Tax treatment of a dividend
  • Capitalisation of profits and reserves and bonus issues of shares
  • Unlawful distributions

The law regulating the making of distributions by a company, as it applies to all companies, is set out in this Practice Note. For details of the additional rules and guidance that specifically apply to listed companies and AIM companies, see Practice Note: Dividends—listed and AIM companies.

What is a distribution?

’Distribution’ is given a very wide definition for the purpose of Part 23 of the Companies Act 2006 (CA 2006).

A distribution is every description of distribution of a company’s assets to its members, whether in cash or otherwise, except:

  1. an issue of bonus shares (whether fully paid or partly paid), and

  2. certain:

    1. reductions of share capital

    2. redemptions of shares

    3. share buybacks, and

    4. distributions of assets to members on the winding up of a company

There is no definition of 'asset' in CA 2006, although there is a definition of 'non-cash asset', being any property or interest in property other than cash. In CA 2006, 'cash' is expressed to include foreign currency.

Interpretation of 'distribution'

A monetary payment or the transfer of a non-cash asset to a member for which no separate consideration is provided will normally be a distribution. However, there may be more difficulty in identifying a distribution if consideration is provided in relation to the payment or transfer.

A distribution has been found to be made on, eg:

  1. the payment

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