FZC in UAE - Disbursing dividends at a % different from ownership

European · Apr 15, 2023

If we have a FZC company in UAE with two shareholders, one owns 65% and the other 35%
Can you disburse dividends in a fiscal year at a ratio that deviates from that of ownership? For example 50% and 50%, assuming both shareholders agree to it and state so in a shareholder's resolution

Sols · Apr 15, 2023

Depends on applicable law. Check what the rules and laws of your FZ say.

If you want to have 65/35 split of control (votes) but 50/50 split of profits, an easy and very common way to do that is to have different share series with different number of votes per share and even different payout ratios. For example, you can have Series A (two votes per share, 1x dividends) and Series B (one vote per share, 1x dividends). If you do a 50/50 split of 1,000 shares, the holder of Series A has 1,000 votes (500x2) while the holder of the Series B shares has 500 votes (500x1). For dividends, each person gets half.

European · Apr 15, 2023

Sols said:
Depends on applicable law. Check what the rules and laws of your FZ say.

If you want to have 65/35 split of control (votes) but 50/50 split of profits, an easy and very common way to do that is to have different share series with different number of votes per share and even different payout ratios. For example, you can have Series A (two votes per share, 1x dividends) and Series B (one vote per share, 1x dividends). If you do a 50/50 split of 1,000 shares, the holder of Series A has 1,000 votes (500x2) while the holder of the Series B shares has 500 votes (500x1). For dividends, each person gets half.

Thanks.
I understand your suggested approach would work well if we want to do that every year.
What if it is a one-off event? I.e., in general we would want to disburse dividends in the same 65/35 ratio as ownership, but this particular year, as an exception, we want do disburse them 50/50.

Sols · Apr 16, 2023

For that specifically, you'll need to check the laws under which the company was formed, which in this case is the FZ. If those laws are unclear on the matter, check if UAE national law applies or look for guidance in the laws on which the FZ's laws are based (very often UK or US).

Generally speaking, it is possible in some jurisdictions but not in others.