Limited Company Director - Dividends on Maternity Leave UK

[Buntybeat]

Hiya

I'm a company director and equal shareholder of a UK limited company, along with 4 other directors. The majority of how we pay ourselves is in dividends, with a small amount of PAYE monthly salary, as its more tax efficient.

I'm due to go on maternity leave in a few months. Must admit I haven't given much thought to pay for my upcoming maternity pay, as I thought as a shareholder I'd still be entitled to equal dividends while on maternity, and it'd just be my small monthly PAYE salary that would be reduced as per our company maternity package.

Recently though one of the other directors said 'obviously we'll just need to reduce down your dividends proportionately while you're away'. It was out of the blue so I was a bit taken aback and wasn't sure how to respond, as I'm not sure legally whats correct. I do obviously understand its a drain on the business, but back when we set up, it was something that was mentioned at the time as a bit of a joke that we'd do well if we went on maternity leave with our dividend pay!

Does anyone know the legal standpoint on this or experienced similar? (in the UK, if it makes a difference).

Thanks! x

My understanding is that you can only distribute different value dividends based on being a different ordinary share class (a,b etc) but an accountant will be along shortly to confirm I’m sure.

Dividends are a payment relating to the number of shares you own, not how much you work.

Dividends are share dependent not work dependent. You need to talk to your accountant.

The default position is that all dividends are split between the issued shares so unless you all have different classes of shares allowing for different dividends to be paid you will get the same as the others.

You are a shareholder. Your maternity leave or employment status has absolutely no bearing on that whatsoever.

If you ceased your directorship and left work altogether, you would still be a shareholder. The only way they could stop paying you dividends would be to buy you out.

Don't let them screw you over.

As everyone has said above, dividend payments are not linked at all to working for the company. They are based on how many shares you hold. Most people that receive dividends from Listed companies will never have worked for the company and will have purchased the shares as part of their investment portfolio.
If you all hold the same amount of shares, and all shares are of the same class, then you will all receive the same dividend payment. It is not legal to reduce your payment to less than that of the others.
If your shares have been issued as different classes (unlikely), the Company's Articles of Association should set out any different rights, including dividend payments, related to each share class.
It sounds like your colleague has absolutely no clue what he's talking about and should have been aware that this is one of the consequences of setting up payment of staff via dividend rather than salary.

I really want to know his response when you point out dividends are share related not work related

Be careful - I've heard of majority directors issuing and distributing more shares to themselves to lower another directors overall share distribution and thus dividend pay out. Not sure if it is the same now, but very little paperwork seemed to be needed.

As apps have said, dividends relate to your share hold in the company, not your work!
It doesn't change if you go on mat leave, on a 6 month sabbatical or change jobs, it only changes if you gain more shares or sell yours

This.

To add a little to what others have said, the only way they can reduce your dividends is there are multiple classes of shares, and you hold a different class to others. You must be paid the same dividend per share as all other shareholders with the same class of shares.