Plain language law

New Zealand law explained for everyone

 Plain Language Law homepage
Back to
52: Board may authorise distributions
or “Company directors can approve sharing profits with shareholders if the company can still pay its bills”
You could also call this:

“Rules for companies paying money to shareholders”

A dividend is a type of distribution a company makes to its shareholders. It’s different from other distributions covered in section 59 or section 76.

The board of a company can’t allow different dividends for different shareholders unless certain conditions are met. These conditions are that the dividend amount matches what the shareholder has paid for their shares, or if it’s required for a special type of company called a multi-rate PIE because of section HM 48 of the Income Tax Act 2007. Another condition is if the company’s rules allow for different dividends and the board follows these rules.

A company’s rules can allow for different dividends for shares in the same class. These differences must be based on clear, objective criteria and not on what the board thinks or decides.

If you’re a shareholder, you can choose not to receive a dividend by writing a letter to the company.

A ‘differential dividend’ means giving a dividend to some shares in a class but not others, or giving a bigger dividend to some shares in a class compared to others in the same class.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

Next up: 54: Shares in lieu of dividends

or “Getting company shares instead of cash dividends”
Next

Part 6 Shares and debentures
Distributions to shareholders

53Dividends

  1. A dividend is a distribution other than a distribution to which section 59 or section 76 applies.

  2. The board of a company must not authorise a differential dividend unless—

  3. the amount of the dividend in respect of a share of that class is in proportion to the amount paid to the company in satisfaction of the liability of the shareholder under the constitution of the company or under the terms of issue of the share or is required, for a multi-rate PIE, as a result of section HM 48 of the Income Tax Act 2007; or
    1. the company’s constitution provides for differential dividends as permitted by subsection (2A) and the dividend is authorised in accordance with the constitution.

      1. The constitution of a company may provide for differential dividends in respect of the shares in a class of shares, which may be determined on any differential basis, but only if the differential basis is based on objective criteria and not on the exercise of a discretion by, or an opinion of, the board of the company.

        Example

        Company Z is an agricultural company whose class A shareholders are all current or former growers and suppliers to the company. The company’s constitution could confer on holders of class A shares a right to differential dividends based on whether or not they are currently growing and supplying produce to the company.

        The company’s constitution could not provide for dividends based on a discretionary criterion, such as whether a shareholder had adequately upheld the reputation of the company.

      2. Notwithstanding subsection (2), a shareholder may waive his or her entitlement to receive a dividend by notice in writing to the company signed by or on behalf of the shareholder.

      3. In this section, differential dividend means a dividend—

      4. in respect of some but not all the shares in a class; or
        1. that is of a greater value per share in respect of some shares of a class than it is in respect of other shares of that class.

          Notes
          • Section 53(2): replaced, on , by section 4(1) of the Companies (Clarification of Dividend Rules in Companies) Amendment Act 2019 (2019 No 68).
          • Section 53(2)(a): amended (with effect on 17 November 2019), on , by section 194 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
          • Section 53(2A): inserted, on , by section 4(1) of the Companies (Clarification of Dividend Rules in Companies) Amendment Act 2019 (2019 No 68).
          • Section 53(4): inserted, on , by section 4(2) of the Companies (Clarification of Dividend Rules in Companies) Amendment Act 2019 (2019 No 68).