It is possible to waive a dividend, but can anyone show me how to find more info about this?

Question

Suppose there are two shareholders of a company, and both agree that only one should receive a dividend. How can the other person correctly waive the dividend? Can anyone point me to something that provides more info on this?

I already own the same class of shares as the other person.

This is because we have mutually agreed that one person should extract cash from the company, but not the other.

Answer 1

I assume this is for the UK and my comments are related solely to that. Any shareholder can waive all future dividends which may be paid for (not necessarily in) a particular accounting year. This must be done before the date that a dividend is declared by the Board of Directors. So you cannot simply come up with the idea when you are sitting in your accountant's office going through the accounts (which will probably be minuted as the board meeting and AGM).

I assume you have an accountant. Any accountant worthy of the name will have a waiver template on their computer.

In summary:
You have to act before the dividend is formally declared.
You are waiving rights to all dividends that may be declared for that year
You have to do the right paperwork at the right time

EDIT: Excellent point about the settlements angle. That is definitely not one to overlook. There really is no substitute for professional advice.

Answer 2

What Skip has said is absolutely correct and answers the question you have asked. In addition though, you should be aware that, nowadays, dividend waivers are looked at very closely by the Revenue, with a view to applying the Settlements legislation. This means, in effect, that they charge additional tax on the parties involved. You can find out more information, together with examples of how the legislation may be applied, at the following HMRC site:

http://www.hmrc.gov.uk/manuals/tsemmanual/TSEM4225.htm


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Your additional info re an agreement between the parties is exactly what the Revenue are looking for to apply the Settlements legislation. Make sure there is enough profit in the year so that everyone could have been paid the dividend had there been no waivers.

Answer 3

You can issue different classes of shares some of which have entitlement to dividend and some not. Google 'preference shares'

http://www.finpipe.com/equity/preftyp.htm