DIVIDENDS

IQT

and probably will, be necessary to make certain alterations
in its articles of association. The reserve fund article must
authorise the payment out of the reserve fund of a special
dividend or bonus; and, further, there must be a power to
satisfy a dividend or bonus by the issue of fully or partly paid
shares. For, as has been stated above, dividends can
only be paid in cash, unless some other form of satisfaction
is authorised by the articles. The article which enables
the company to satisfy the bonus by the allotment of fully
paid shares will authorise the company, by resolution in
general meeting, to capitalise any part of the undivided
profits and to distribute the same as a bonus, power being
given to the directors to make provision as to fractions.

The Capital Redemption Reserve Fund may be used for
paying up and issuing fully paid bonus shares in the event
and to the extent specified in s. 46 (5) (see supra p. 39).

The articles having been altered if and so far as is necessary,
and the capital of the company, if necessary, increased, the
resolution to capitalise will be passed, and the matter in due
course carried out. If the article is so framed that it is neces-
sary expressly to declare a bonus, the bonus will be made pay-
able free of income tax. This can be done as the company will
have already paid income tax on the profits used for the
purpose of the bonus if they are taxable, while if they represent
capital appreciation or premiums received on the issue of
shares, they will not, at any rate, unless distributed in cash,
be liable for income tax. The article is, however, often
framed in such terms that the resolution need not expressly
declare a bonus. For an example of such an article, see
Palmer's Company Precedents, 13th edition, Vol I, p. 750.

Bonus shares so issued are issued for a consideration other
than cash, and therefore, on making the return as to allot-
ments (see s. 42), a contract or contracts constituting the
title of the allottees to the shares must be filed.

In cases where the issued shares of a company are not fully
paid, a dividend can be declared out of the undivided profits,
and a call made on the shares, payable on the same date.
The shares thus become fully paid and profits to the extent
of the unpaid liability capitalised. It would, however, be
better, in order to avoid any claim for income tax, to proceed
ander an appropriate article authorising the application of
reserve fund or other undistributed profits in paying ur
partly paid shares.

On the declaration of a dividend, warrants must be pre-
pared. In practice it is usually possible to prepare and fill
in all warrants and have them ready for despatch before

Dividend
Warrants.