25 Capital maintenance and dividends 1 Introduction
General principle
1.1 When members contribute capital to the company it forms what is known as the creditors’ buffer.
1.2 A company’s capital (creditors’ buffer) consists of its share capital and undistributable reserves.
1.3 These funds cannot be ‘distributed’ i.e. given back to the members.
Development of the principle
1.4 Three main areas are covered:
(a) Payment of dividends.
(b) Reduction of capital.
(c) Assisting others to acquire its own shares.
2 Distributable profits
Payment of dividends
2.1 (a) The power to declare a dividend is given to the directors by the articles.
(b) Members do not have a right to be paid a dividend. They must approve the dividend at a G.M. (they cannot increase it).
(c) Dividends are normally declared payable on the paid up amount of share capital and may be in cash or otherwise.
(d) (i) A dividend is a debt only when it is declared and due for payment.
(ii) If declared and unpaid it is a deferred debt.
(iii) An unclaimed dividend becomes statute barred after six years.
Basic rules
2.2 The basic rules contained are set out in ss.263 and 264.
s.263 – Basic restrictions which apply to public and private companies.
s.264 – Further restrictions applying to public companies only.
Basic restriction applicable to all non‑investment companies s.263