Distributable profits meaning

STOP PRESS: A major, wide-ranging overhaul of the UK listing framework took effect on 29 July 2024, abolishing the premium and standard listing segments and introducing a unified category for equity shares of commercial companies. That commercial companies category is strongly disclosure-led and sits alongside other listing categories, including the shell companies, secondary listing and closed ended investment fund categories. A new UK Listing Rules sourcebook commenced to deliver these reforms, and the previous Listing Rules sourcebook was withdrawn at the same time. For more detail, see Practice Note: Reform of the UK listing regime—fundamentals for guidance. This Checklist represents the listing regime as it existed before 29 July 2024. A limited company may acquire its own shares if certain conditions set out in the Companies Act 2006 (CA 2006) are satisfied under that statute. This is commonly referred to as a share buyback or a purchase of own shares. In addition to the provisions of the CA 2006, further rules and guidelines are relevant to a listed company...

A limited company can repurchase its own shares where the requirements of the Companies Act 2006 (CA 2006) are met. This is termed a share buyback, or a purchase of own shares. Beyond the CA 2006, additional rules and guidance are relevant to a listed company or an AIM company. A private limited company may only carry out an off‑market buyback; accordingly, this checklist does not cover on‑market buybacks. For an overview of share buybacks, including how off‑market and on‑market buybacks differ, see Practice Note: Share buybacks—the legal framework. Preliminary issues Before proceeding with a buyback, a private limited company should work through several preliminary points and may need to complete certain preparatory steps. For more detail, see Practice Notes: Private company share buybacks—initial considerations and Tax issues on share buybacks for corporate lawyers. Articles of association and shareholders' agreements: Check that the company’s articles provide the necessary power to undertake the proposed buyback...

Clipperton and another v HMRC [2024] EWCA Civ 180 Under an arrangement dubbed ‘Aikido’, the taxpayers’ company, WY, formed a subsidiary (WS) that created A shares and a single B share. WY transferred the B share into a trust, under which WY retained an ongoing interest, with a sum to be paid to charity, though the principal beneficiaries were the two shareholders. WY then subscribed for another WS A share at a hefty premium, and WS thereafter implemented a reduction of capital, generating distributable reserves. The result was that, when WS declared a substantial dividend on the B share, the shareholders then became entitled to virtually all of the proceeds. HMRC contended that, notwithstanding the elaborate steps through which WY’s profits moved, the funds amounted to a distribution by WY once they reached the shareholders. The taxpayers maintained that there was a settlement for which WY was the settlor. The distribution by...

A recurring scenario is that payments are made on account of dividends during a financial year, with the expectation of declaring a dividend at the year end. If the company fails, there are then no distributable profits from which a dividend can be declared and the on‑account payments, often treated as loans, are recoverable. In private companies, directors/shareholders are frequently advised to adopt this approach as a tax‑saving measure... When can dividends be declared? Under Part 23 of the Companies Act 2006 (CA 2006), distributions may only be made to members out of profits available for that purpose. A company’s profits available for distribution are its accumulated, realised profits, so far as not previously applied by distribution or capitalisation, less its accumulated, realised losses, so far as not previously written off in a reduction or reorganisation of capital... The amount of profits available for distribution is determined by reference to the company’s last annual accounts, subject to two exceptions: where the distribution would breach...

Dividends A company generally possesses an implied authority to share its profits with its members, save where the articles of association provide to the contrary. A dividend represents one form of distribution available to members and, in practice, is the distribution that companies make most frequently. To be lawful, any distribution must comply with Part 23 of the Companies Act 2006 (CA 2006) together with the common law rules on distributions, as adapted and informed by that Part. For a fuller consideration of the legal framework and routine practice relating to distributions made by a company, see Practice Note: Distributions. For information about the potential consequences and liabilities arising from failure to comply with the law on distributions, see Practice Note: Unlawful distributions. This Practice Note concentrates on the law and practice that ordinarily apply to the declaration and payment of dividends, which is a subject not specifically addressed in CA 2006, Pt 23. For details of the additional rules, procedures and guidance that apply in particular to dividends...

Share buybacks (purchase of own shares) A limited company can repurchase its own shares, provided the conditions in the Companies Act 2006 (CA 2006) are satisfied. This is commonly described as a share buyback or a purchase of own shares. Alongside CA 2006, other regimes are relevant where the company is listed or on AIM. In particular, a listed company must consider the Listing Rules (LRs) and the Disclosure Guidance and Transparency Rules (DTRs). An AIM company must consider the AIM Rules for Companies (AIM Rules); however, those rules do not expressly address share buybacks, and AIM Regulation has confirmed that, in most situations, an AIM company following the LRs for buybacks would be regarded as best practice. An AIM company is also subject to DTR 5. In addition, both listed and AIM companies may follow guidance issued by institutional investors. The CA 2006 restrictions applicable to share buybacks do not extend to unlimited companies. For further information on this type of company, see Practice Note: Unlimited companies...

Insert the following as new definitions (if not already included) in the articles of association of the relevant company: A Ordinary Shares — refers to the A ordinary shares of [ insert amount ] each comprised within the share capital of the Company; Available Profits — signifies profits that are distributable as construed under the Companies Act; B Ordinary Shares — denotes the B ordinary shares of [ insert amount ] apiece forming part of the Company’s capital; Issue Price — indicates the price at which the relevant Share is allotted, being the combined total of amounts paid or treated as paid in respect of its nominal value together with any share premium applicable; Preference Dividend — means the dividend payable in accordance with Article [ insert number of article dealing with company dividend payments ]; Preference ...

Company number: [ enter company number ] [ enter company name ] [ LIMITED OR LTD ] Minutes of a meeting of the board of directors (the Meeting) of [ enter company name ] [ Limited OR Ltd ] (the Company) Held at [ enter place of meeting ] Held on [ enter day, month and year of meeting ] at [ enter time of meeting ] [ am OR pm ] Present: [ Enter the names of any directors in attendance, whether in person or by an approved remote means (unless such methods are expressly excluded by the company’s articles of association) ] [ by [ enter mode of participation for each director joining remotely ] ] In attendance: [ Enter the name of anyone present, physically or remotely, who does not form part of the quorum (e.g. the company secretary, any legal advisers) ] Apologies: [ Enter the names of any directors unable to attend the meeting ] ...

This Agreement is entered into on [ insert day and month ] 20[ insert year ] Parties [ insert name of seller ] [ of [ insert address ] OR trading as [ insert trading name ] of [ insert address ] OR a firm whose principal place of business is [ insert address of firm ] OR [ an LLP OR a company ] incorporated in [ insert place of incorporation, eg England and Wales ] with registered number [ insert registered number ] whose registered office is at [ insert address ] ] (the Seller), [ insert company name ], a company incorporated in England and Wales with registered number [ insert company number ], whose registered office is at [ insert address ] (the Company). Recitals The Company has share capital of [ insert amount ], divided into [ insert number ] [ insert class ] shares, each with a nominal value of [ insert nominal...