Shareholders agreement with dividend policy

No shareholder has a right to a dividend unless one is declared, and the directors who decide whether to declare one are usually the shareholders who are paid salaries anyway. A dividend policy in the shareholders' agreement turns a discretion into a commitment: a stated proportion of distributable profits is paid out, the rest is retained for stated purposes, and the directors decide within the policy rather than instead of it. The policy has to work within the law on distributions, deal with the shareholders who draw salaries, and allow for different classes of share. I draft the agreement, with a briefing session and a note on how it fits the articles, for a fixed fee of £995, delivered in five working days.

Who this is for

Shareholders in England and Wales, particularly those who do not work in the business, who want a predictable return from the company's profits, and working shareholders who want the policy agreed so that the dividend is not an argument every year.

What matters in a dividend policy

Why a policy and not a promise

A shareholders' agreement cannot promise a dividend, because a dividend can be paid only out of profits the company has available and only if the directors, with their duties to the company, decide to recommend it; what it can do is bind the shareholders to procure, so far as lawful, that a stated proportion of distributable profits is distributed each year unless a stated reason justifies retaining more, and to vote accordingly, which converts the directors' discretion into a policy they apply and the shareholders can enforce against each other. The policy sits in the agreement; the articles (usually on the model in the Companies (Model Articles) Regulations 2008) govern how dividends are declared.

The distributable profits rule and what can lawfully be paid

Section 830 of the Companies Act 2006 permits a distribution only out of profits available for the purpose (accumulated realised profits less accumulated realised losses), by reference to the last annual accounts or interim accounts that justify it, and a shareholder who receives a dividend knowing it is unlawful is liable to repay it under section 847, with the directors who paid it personally exposed; the policy should therefore be expressed as a proportion of lawfully distributable profits, require interim accounts for interim dividends, and say that the accountants confirm the figure before any dividend is declared, because a dividend paid on a forecast rather than on accounts is the one that has to be repaid.

The proportion distributed and what the business retains

The policy should state the proportion of distributable profits to be paid out (a percentage, or everything above a stated retained amount), the purposes for which the directors may retain more (working capital, capital expenditure in the approved budget, repayment of borrowing, a stated reserve), the timing (annual after the accounts, or interim dividends quarterly), and the process (the directors recommend within the policy, the shareholders approve); a policy that leaves the retention to the directors' discretion is the discretion the policy was meant to replace, and the purposes should be defined.

Salary, dividends and the shareholders who work

Working shareholders are paid salaries for their work under service agreements, and the policy should sit alongside a pay process so that salary is set at a stated or market level and increases are approved rather than taken, with the dividend then shared in proportion to shares; where working shareholders take low salaries and high dividends for tax reasons, the accountants' advice governs and the agreement should record that the structure is reviewed with them, because the balance affects the non-working shareholders' return and the company's tax. Loans to directors against future dividends need shareholder approval under section 197 of the Companies Act 2006.

Different classes and different dividends

Where shareholders want different returns (an investor's preferred dividend, a founder's deferred dividend, a class for employee shareholders), the articles can create classes with different dividend rights and the agreement can state the policy for each, with dividends on one class waived or deferred as agreed; a preferred dividend can affect tax reliefs an investor claims, and the accountants should check the class rights before they are created. The note on the articles addresses the classes and the rights, and amended articles are quoted separately.

Changing the policy and disagreement

The policy should be changeable only with the consent of a stated majority or of each class affected, should be reviewed at stated intervals, and should say what a shareholder may do if the directors retain profits outside the policy (require an explanation, require a meeting, and in the last resort the remedy for unfair prejudice under section 994 of the Companies Act 2006, which has been granted where profits were withheld while the majority took its return through salary); the policy exists so that the remedy is never needed, and the agreement should say that the shareholders will vote to give effect to it.

What it costs

Shareholders agreement, £995. An agreement between the shareholders of a private company, with a note on how it interacts with your articles. Five working days.

Buying online forms the engagement on payment. The scope is what the shareholders agreement page describes, you accept the Terms of Service at checkout, and I email you within four working hours to get started. If you would rather ask something first, email me.

What you get

• A briefing session with all shareholders together, to work through the questions people avoid asking each other
• A shareholders agreement drafted for your actual situation rather than a precedent with the names changed
• A note on how the agreement interacts with your articles, and whether the articles need amending to make it work
• A plain English explanation of every material choice, so nobody signs something they have not understood
• One round of amendments
• Signature-ready documents

What is not included

• Acting for individual shareholders separately, because I act for you jointly
• Company valuation
• Tax structuring, which needs your accountant and should run alongside this
• Amended articles of association and IP assignments, which I quote separately
• Filing at Companies House
• Resolving a dispute that has already started

Questions I am often asked

Can the agreement guarantee me a dividend?

It cannot, because a dividend can be paid only from profits available and on the directors' recommendation. It can bind the shareholders to a policy under which a stated proportion of distributable profits is paid out unless stated reasons justify retention, which is the enforceable version of a guarantee.

The directors keep retaining profits and paying themselves salaries. What can I do?

Under a policy, require them to apply it or explain; without one, the remedy for unfair prejudice is available but slow. The agreement puts the policy in place and the pay process alongside it.

Can we pay different dividends to different shareholders?

Only through different classes of shares with different rights in the articles, or by a shareholder waiving a dividend. The agreement states the policy for each class and the note on the articles addresses the classes.

Related guidance and services

• Shareholders agreement, £995, the service this page describes
• Contract review, £495
• Employment contracts and handbooks, £595
• Shareholders agreement when one shareholder works in the business and one does not
• Shareholders agreement with reserved matters

This page is general guidance for businesses in England and Wales, not advice on your own circumstances. Last reviewed: October 2026. Email geoffrey@caesar.co.uk.