CHAPTER XVII 
DIVIDENDS 
Payment of 
Interest out 
of Capital. 
Payment of 
Dividends 
T'HE payment of a dividend is a distribution, intended to be 
made periodically by a company among its shareholders, of 
its net revenue or profits. No dividend can be paid out of 
capital, except in the special circumstances mentioned in 
s. 54 of the Act, and subject to the provisions of the section. 
The section extends to companies incorporated under 
the Companies Acts the powers usually granted by private 
Acts of Parliament to statutory undertakings, e.g. railway 
companies, of paying out of capital interest on paid-up capital 
during the unprofitable period of construction of works. The 
section only permits interest to be paid on shares which are 
issued to provide money for the construction of works or 
buildings, or the provision of plant, ‘which cannot be 
made profitable for a lengthened period.” It seems likely 
that the Courts will not be troubled with decisions as to 
what constitutes ‘a lengthened period’ in each case, seeing 
that the previous sanction of the Board of Trade is required 
to any such payment of interest as the section allows. So 
far as the company is concerned, all that it can do is to take 
care (1) that the shares are issued solely for the purpose 
of defraying expenses of the kind specified; (2) that the articles 
are, if necessary, altered, or a special resolution passed, to 
authorise the payment; (3) to apply to the Board of Trade 
for its sanction. If the Board of Trade grants its sanction, 
the company (1) may charge such payments to capital as part 
of the cost of construction; (2) must show in its accounts, from 
time to time, the capital on which, and the rate at which, 
interest has been paid during the period covered bv the 
accounts. 
The Board of Trade determines the period for which 
interest may be paid, which must never extend beyond the 
end of the half-year next after the half-year in which the 
works, &c., are completed. No higher rate than 4 per cent. 
or such other rate as may for the time being be prescribed 
by Order in Council, can in any circumstances be paid. An 
Order in Council of 17 December, 1929, prescribes that the 
rate ‘shall in no case exceed 6 per cent. per annum.’ 
The power to declare a dividend can be vested by the 
articles in the directors absolutely, but is usually vested 
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