The workshop and the dividend

The afternoon

Tamarind Advisory Ltd is a private company limited by shares. It was incorporated in 2024. It has no constitution, so section 41 applies the rights, powers, duties and obligations of the company, the board, each director and each shareholder. The shares are one class of shares, all ordinary, and they have no par value. Meera holds 60 of the 100 shares and Ravi holds 40. Each share was issued at Rs 1,000 and has been paid in full, so the stated capital of the class is Rs 100,000 (section 7). Section 46 gives each share one vote on a poll and an equal share in dividends the board authorises. Both are directors.

In September 2026 the company’s assets are worth Rs 1,000,000 before either proposal below. Its liabilities are Rs 400,000. Retained earnings, after accumulated losses at the start of the accounting period, are Rs 350,000. The last preceding accounting period’s turnover was Rs 80 million.

The board puts two proposals to the shareholders the same afternoon.

1. Buy the workshop next door for Rs 800,000. The contract is not written so that the purchase takes effect only if the shareholders approve it.
2. Pay a dividend of Rs 200,000.

Both directors are satisfied that, once the dividend is paid, Tamarind can still pay its debts as they become due in the normal course of business. Both will sign the certificate to that effect. At the meeting both shareholders attend and both vote. Meera votes in favour of each proposal. Ravi votes against each proposal.

The workshop

A major transaction includes an acquisition of assets worth more than 75 per cent of the company’s assets before the acquisition (section 130). Approving a major transaction is a power the shareholders exercise by special resolution (section 105). The workshop is Rs 800,000. The assets before the purchase are Rs 1,000,000.

Rs 800,000 ÷ Rs 1,000,000 = 80 per cent.

Eighty per cent is more than 75 per cent, so the purchase is a major transaction. The company must not enter into it unless the shareholders have approved it by special resolution, or the contract is conditional on that approval (section 130). This contract is not conditional on approval. The special resolution is therefore required before the board can bind the company to the purchase.

A special resolution needs 75 per cent of the votes of the shareholders who are entitled to vote and who do vote. Both vote. The votes cast are 100. Meera’s 60 votes in favour are 60 per cent of the votes cast. Sixty per cent is below 75 per cent. The special resolution fails.

The board must not sign the workshop contract on these votes.

The dividend

A dividend is a distribution: a payment to a shareholder in that person’s capacity as a shareholder (section 2). Before it is paid, the company must satisfy the solvency test in section 6. Both limbs are judged at the time of the payment, on the footing that the dividend has been paid.

The directors have already judged the first limb. They are satisfied that Tamarind can pay its debts as they become due, and they will sign the certificate. The second limb asks whether the value of the assets is greater than the liabilities plus the stated capital.

Item, on the footing that Rs 200,000 has been paid	Amount
Assets	Rs 800,000
Liabilities	Rs 400,000
Stated capital	Rs 100,000

Liabilities plus stated capital are Rs 400,000 + Rs 100,000 = Rs 500,000. Assets of Rs 800,000 are greater than Rs 500,000. The second limb is met. Had the assets been Rs 500,000, they would not have been greater, and the board could not authorise the dividend.

Section 63 also requires the dividend to be paid out of retained earnings after accumulated losses have been made good. Retained earnings are Rs 350,000. The dividend is Rs 200,000. The earnings cover it.

The board authorises the dividend, and the shareholders approve it by ordinary resolution (section 61). An ordinary resolution is a simple majority of the votes of those entitled to vote and voting (section 104). Meera’s 60 votes are 60 per cent of the 100 votes cast. That is a simple majority. The ordinary resolution passes, although Ravi votes against it.

The same 60 votes are the whole of the difference between the two proposals. They are 60 per cent of the votes cast. That percentage passes the dividend. It fails the workshop.

There is one class, and every share is fully paid. The dividend is Rs 200,000 across 100 shares, which is Rs 2,000 a share. Meera’s 60 shares receive Rs 120,000. Ravi’s 40 shares receive Rs 80,000. The board must pay the dividend not later than 12 months after it is declared (section 63).

Companies Act, sections 2, 6, 7, 39, 41, 46, 61, 63, 104, 105 and 130.

What you can now explain

You can take Tamarind’s assets of Rs 1,000,000 and its 100 votes and reach both results: the workshop needs a special resolution and does not get one, and the dividend meets the solvency test, the retained-earnings figure and the ordinary resolution. The directors chapter works through which transactions need shareholders. The company-file chapter works through the solvency test and how the votes are counted. The next case is a judgment about a director who tried to sue in the company’s name after a winding-up order: Manhattan Coffee.