Question about paying dividends to someone before they are made a shareholder.

[LouC]

Hi everyone, got a quick question, hope someone can help...

I set up a new ltd. company in May last year. The plan was to make my wife 50% shareholder - but that got missed during the paperwork. So as of now I'm the only (100%) shareholder.

My accountant says he'll get round to it before the end of the financial year - but I'm okay to still pay her a dividend now. Sounds a bit fishy to me - but I've been with him a while and he's not seen me wrong so far.

Am I right to be suspicious?

Many thanks,
Lou

[Clare@InTouch]

Yes you are. You cannot pay dividends to someone who doesn't hold shares.

Either your accountant is planning to backdate the transfer, which he absolutely should not do, or payments to her will be allocated to a loan account and then repaid with a dividend once shares have been transferred. The latter is fine, but there may be tax implications if the loan goes over certain limits.

A share transfer is easy, so I'd question why it's taking so long to prepare the paperwork for you. Unless he knows something we don't, which is always possible - just ask him to explain in more detail

[LouC]

Thank you Clare, that's very helpful.

As nothing has been said about allocating the payments to a loan account, I can only assume he means to backdate the the transfer. Before I confront him about this, can you tell me what would be the problem with doing it that way?

Many thanks again.
Lou

[northernladuk]

Thank you Clare, that's very helpful.

As nothing has been said about allocating the payments to a loan account, I can only assume he means to backdate the the transfer. Before I confront him about this, can you tell me what would be the problem with doing it that way?

Many thanks again.
Lou

Wow.... Paying dividends to someone not a shareholder? I would suggest you go away and actively read up on how to run a company. You now have a legal responsibility for your finances.

Don't confront him. Go in an admit you don't have a bloody clue and can he explain it all in plain English to you. You pay him for professional services so use him. If you don't understand then ask, if you don't understand what he says then ask again. If you still don't understand then get another accountant. To blindly enter in to a risky area with absolutely zero clue is just ridiculous.

[malvolio]

Thank you Clare, that's very helpful.

As nothing has been said about allocating the payments to a loan account, I can only assume he means to backdate the the transfer. Before I confront him about this, can you tell me what would be the problem with doing it that way?

Many thanks again.
Lou

Ermm... It's borderline illegal? All corporation documentation has to reflect facts. If an "event" happened on 1 April, that's when it should be recorded. That's why dividend vouchers, for one example, have to be written at the time the dividend is paid. Otherwise it could be seen as an attempt to rewrite history and the only common reason for that is to conceal fraudulent behaviour.

Clearly you aren't trying to do any such thing, but why should a professional put you in a position where the accusation can be made?

[LouC]

Wow, Northern lad, that's some chip on your shoulder. Why is it that you feel the anonymity of the internet gives you the right to be rude to others? But then again, you seem the type to relish this kind of illicit confrontation - one without any real danger. I'm sure you felt like a very big man writing all those tough, tough words - on an IT contractor's forum.

To everyone else, thanks for your posts. Life is a learning curve and we all make mistakes. In this case, I placed too much trust in someone who I thought had my best interests at heart, and I took my eye off the ball. I've learnt from this and sacked my accountant.

[SueEllen]

@Louc NorthernLadUK has been polite.

There are crooked accountants out there and I've met people who have been screwed over by these people in person. There are also people on this board who were screwed over by a guy who got in the national press - google "Darren Upton".

While you need to trust your accountant to give you professional advice if it sounds "wrong" then question him or her about it. If after questioning and your own research* it still sounds wrong you need to engage another accountant.

*Thanks to the internet there are a lot of accountancy resources online plus HMRC have all their booklets online.

[northernladuk]

Wow, Northern lad, that's some chip on your shoulder. Why is it that you feel the anonymity of the internet gives you the right to be rude to others? But then again, you seem the type to relish this kind of illicit confrontation - one without any real danger. I'm sure you felt like a very big man writing all those tough, tough words - on an IT contractor's forum.

To everyone else, thanks for your posts. Life is a learning curve and we all make mistakes. In this case, I placed too much trust in someone who I thought had my best interests at heart, and I took my eye off the ball. I've learnt from this and sacked my accountant.

Come to the CUK meets or work with me and I will tell you face to face. The only difference will be that straight talking doesn't sound as aggresive as it does on a faceless forum.

[Wanderer]

Yes you are. You cannot pay dividends to someone who doesn't hold shares.

Yep, agree with that!

Either your accountant is planning to backdate the transfer, which he absolutely should not do...

Presuming a close company where the director is the only shareholder, is it possible that shares could be gifted to the spouse but the paper work isn't completed and filed until some future date? Is there a time limit on how quickly the documents have to be filed at Companies House?

....or payments to her will be allocated to a loan account and then repaid with a dividend once shares have been transferred. The latter is fine, but there may be tax implications if the loan goes over certain limits. A share transfer is easy....

Agreed, creating a loan which is repaid by a dividend is going to be messy and is best avoided.

As Clare says, the elephant in the room is that the director should just issue the shares and the problem is solved. I don't think there is anything to stop the director gifting shares and declaring a dividend on the same day, is there?

[TheCyclingProgrammer]

@Wanderer: Companies House do not need to be notified of share transfers until the next annual return, but a share transfer form needs to be filled out, the company register updated and new certificates issued.

The paperwork is so simple there really is no reason to add any risk to this by backdating the paperwork.