Question

The constitution of SAFPL allows for the directors to pay a dividend to holders of A Class shares at their discretion. Over many years the company had paid a dividend which, although not sizeable, was sufficient for the shareholders who chose to do so to live on it. However, David and his siblings are angry about the discontent that Jason has been stirring up among the Henry grandchildren, some of whom they see as lazy and undeserving. So the board of SAFPL resolves not to pay a dividend to the A Class shareholders this year and, instead, to retain earnings to fund the development of the organic farm in the Riverina. What action, if any, can the Henry grandchildren take in respect of non-payment of the dividend?

Answer 1

Ans. Dividend payment to shareholders of company each year is not obligation of company. Dividend is paid when board of directors declare dividend. So, in present case company was paying dividend for many years to A class shareholders of company. But every year it is discretion of company whether it pays dividend to shareholders or use retained earnings in the development of any new project. Like in case of SAFPL it decided in current year not to pay dividend, instead use the retained earnings in development of the organic farm in the riverina. So,  Henry grandchildren  cannot take any action in respect of non-payment of the dividend. As it is the discretion of directors whether to pay dividend or not.