First timer's questions about dividend/salary allocation,and compnay incorporation

[Clare@InTouch]

I didn't know about different share classes, and potentially voting different dividends amounts to them in this way, but since reading this I've been looking into it with a view to changing my current 50/50 share arrangement with my spouse to benefit from it.

BUT - I Just came across this page: Dividend waiver - when Settlements legislation may apply and especially the example at the bottom.

Mrs I owns A shares and Mr I owns B shares. Both A and B shares rank equally. Again profits of £25,000 are made and a dividend of £20,000 is voted on the B shares while no dividend is voted on the A shares.

Clearly by not voting dividends on the A shares (which rank equally with the B shares) this is a bounteous arrangement as the dividend paid on the B shares could only be paid if no dividend was declared in respect of the A shares. £16,000 of the dividend paid to Mr I is attributed to Mrs I under section 624 because the decision only to vote dividends on certain shares was a bounteous arrangement.

Now I'm not really sure about the ranking of shares side, but on the face of it this seems to suggest that using different share classes in this way is not a safe arrangement.

That specific example refers more to the fact that there were only profits of £25,000 and therefore it wasn't possible to pay the same value of dividend on each share class - the holder of the A shares has effectively given something up (waived their dividend) so that the holder of the B shares could take a divi of that amount.

If you have profits available of £50,000 and paid £25,000 to A and £15,000 to B then no one has given anything up in that way - so no bounty.

[matzie]

Ah, that makes sense. So perhaps it would still make sense to reclassify our existing shares. I'll discuss with my accountant. Thanks.

[jdgardner]

I'm just about to incorporate my company and allocate shares....

So from that I gather I can allocate 1 share to myself and 1 share to my wife. We can then vote on what dividend to pay to us both as shareholders. The dividend will be a percentage of the companies earnings but not all of the earnings - correct ?

[northernladuk]

So from that I gather I can allocate 1 share to myself and 1 share to my wife. We can then vote on what dividend to pay to us both as shareholders. The dividend will be a percentage of the companies earnings but not all of the earnings - correct ?

Wow.. Talk to an accountant.. Quickly....

[Ticktock]

Wow.. Talk to an accountant.. Quickly....

At least he searched first.

[TheFaQQer]

The dividend will be a percentage of the companies earnings but not all of the earnings - correct ?

Technically, yes - it has to be a percentage of something. You certainly can't pay it out of nothing.

Your accountant should be able to explain it to you in a way that you understand.

[TheCyclingProgrammer]

Wow.. Talk to an accountant.. Quickly....

Well, he's right...it will be a percentage of his earnings.

[jdgardner]

Well, he's right...it will be a percentage of his earnings.

Thanks - I get the picture now. Of course I'll seek out an accountant.

[Andy O]

From my understanding you take dividends from your profit, which is your earnings less the expenses. Expenses include travelling, salaries, accountants fees, etc.

[mudskipper]

From my understanding you take dividends from your profit, which is your earnings less the expenses. Expenses include travelling, salaries, accountants fees, etc.

And tax liability, which is probably the biggest.