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Dividends and distributable profits: part 1

In the first article in an eight-part series, Croner-i tax and accounting writer David Duvall FCA considers why the payment of dividends can be a difficult area with major listed companies falling foul of the law in recent years. Here we focus on the legal and regulatory framework and the restrictions on making distributions

The law on distributions is founded on the more general concept that capital, once raised, must be maintained. Capital is protected and cannot be returned to the shareholders, other than by a few carefully circumscribed procedures.

Distributions are made by companies, not by groups. This is the position under both common law and statute.

A distribution is defined in the Companies Act 2006 (CA 2006) s829 as ‘every description of a distribution of a company’s assets to its members, whether in cash or otherwise subject to the following exceptions:

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