Provisions for the declaration of any dividend

Procedure for declaring dividends

A company’s articles of association (and any shareholders’ agreement) should always be checked regarding the provisions for the declaration of any dividend. The Companies Act 2006 does not specify who shall declare dividends.

Companies with model articles of association

Article 30 of the model form articles of association states that whilst the directors can recommend a final dividend, the members must declare a dividend by ordinary resolution. This can be either by written resolution or in a general meeting. Most private companies will choose to do this by written resolution.

Members cannot vote to pay themselves a final dividend more than the amount that the directors have recommended but can decide to pay a smaller amount. Directors alone can resolve to pay interim dividends.

Companies with modified articles of association

As the Companies Act 2006 does not specify who declares dividends and does not stipulate a requirement for dividends to be declared by shareholders, some SME private companies will choose to amend their articles of association to dispense with the need for dividends to be declared by shareholders.

If a company has modified their articles and specifically removed article 30 of the model articles and is otherwise silent on the point, directors will be able to declare all dividends (final and interim). There will therefore be no need for shareholder approval unless the company decides it is best practice.

The board minutes to declare dividends cover both the situation where shareholder approval is required and where it isn’t.