Company Law - Capital Dividend Essay Example | Topics and Well Written Essays - 2500 words

Company Law - Capital Dividend - Essay Example In this regard, directors should be considering the issue of shareholders as well as their interest should also be considered carefully1. Furthermore, apart from framing strategies for the obtainment of greater value, they should also consider how this value is to be distributed among the investors and other stakeholders possessing a certain degree of interests in the company profits. Consequently, while a company intends to generate profits and share it partially among the shareholders, one of the important issues that need to be considered by the directors is whether the distribution of dividends or payments to shareholders are made in accordance to Companies Act practiced within the region2. In recent times, there has been a strict line established in the UK in relation to compliance with legal requirements for distributions. In this regard, directors may find themselves at risk of liability if they grant dividends in breach of the rules; even if the breach tends to be technical o ther than substantive. The laws governing distributions of dividends in the UK are particularly incorporated in the Part 23 of Companies Act 2006. The law is applicable in both the contexts where accounts are prepared according to Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS)3. The Companies Act 2006 makes it mandatory for all the companies to follow the rules and regulations prescribed in the Act owing to which, any sort of non-compliance tends to generate legal actions against the company. With this concern, the paper intends to provide a clear understanding of dividend sharing laws, governing in the context of UK Companies and further makes analysis of issues that need to be considered by both private and public companies in the course of making payments to shareholders. Understanding the Laws Relating To Dividends in UK According to Part 23 of Companies Act 2006, distribution to shareholders means â€Å"every description o f a company assets to its members, whether in cash or otherwise, subject to certain exceptions†4. The key aspects that Companies Act 2006 states affirms any company in the UK to be eligible to make distributions only out of their profits earned. Accordingly, the profits available for the distribution is determined as total accumulated realised profits less total accumulated realised losses5. It is worth mentioning on this ground that not everything documented as profits is realised in certain circumstances, where the accounts are prepared under the standards of IFRS. For instance, a gain on revaluation of companies’ investment property can be documented as profit under the rules prescribed by IFRS; but it cannot be referred as a realised profit6. In addition to this, public companies are required to decipher extra cautious attitude and check that their available net assets, after making distribution, do not fall less than the aggregate called-up share capital as well as reserves which are not assigned for distribution, such as share premium accounts, revaluation reserves and capital redemption reserves. Furthermore, the Act also prescribes those directors of the companies to consider their fiduciary duties prior to