My wife and I are the only shareholders in a private company. The company has substantial retained profits on the balance sheet. For many years the company has paid dividends to my wife and I (the only shareholders) rather than drawing salaries or directors fees. I am still employed by the company in a hands-on capacity. We have recently entered into an agreement to sell a majority shareholding in our company to a third party. There will be a new board and directors. What will the status be of the interim dividends that have been paid to my wife and I this financial year? Could the new board, at the end of the financial year, decline to pay a dividend and require repayment of the interim dividends already made? If they don't do so, are they required to make the same dividend payment to the new shareholders?
Dear TTS,
Hard to say - you should ask your solicitors who organised your share sale agreement. Most share sale agreement contains among other things provisions of obligations of seller and buyer after settlement, and depending on accounting advice if the price of the shares sold factors into those interim dividends and retained earnings. If not addressed in the share sale agreement, then the company’s own existing constitution (assuming there is one and not using Corporations Act 2001’s replaceable default rules) may address your questions. If that doesn’t, then either the new board and directors may have free rein to decide what to do with dividend policy or you as minority shareholder should negotiate with the majority shareholder to enter into a shareholders agreement how this is addressed moving forward (and if you still work in the company there may need to be a consultancy or transition service agreement of some sort). As to ”require repayment of the interim dividends already made” unable to assess without seeing all information how when what authority was made in the company. Talk to your solicitors.
Good luck!
-Nighthelyn
Hard to say - you should ask your solicitors who organised your share sale agreement. Most share sale agreement contains among other things provisions of obligations of seller and buyer after settlement, and depending on accounting advice if the price of the shares sold factors into those interim dividends and retained earnings. If not addressed in the share sale agreement, then the company’s own existing constitution (assuming there is one and not using Corporations Act 2001’s replaceable default rules) may address your questions. If that doesn’t, then either the new board and directors may have free rein to decide what to do with dividend policy or you as minority shareholder should negotiate with the majority shareholder to enter into a shareholders agreement how this is addressed moving forward (and if you still work in the company there may need to be a consultancy or transition service agreement of some sort). As to ”require repayment of the interim dividends already made” unable to assess without seeing all information how when what authority was made in the company. Talk to your solicitors.
Good luck!
-Nighthelyn
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