Dividend Distribution in Societe Anonyme and Limitation of Shareholders' Claims

legal insight

November 2023

Anta Tsoia, LL.M. (mult.)

Abstract: The main incentive for a person to acquire shares in a societe anonyme (SA) is the property right they provide to participate in the company's annual profits through the distribution of dividends. This paper briefly discusses the methods of dividend distribution in societe anonyme, the claim that arises in favour of the shareholder for the dividend and the period within which the beneficiary can proceed to pursue it in court.  

1. Introduction 

The most important property right of a shareholder is the right to participate in the company's actual annual profits, based on the percentage of his shares in the share capital, which cannot be affected by a relevant statutory provision or by a resolution of the general meeting. The shareholder is also entitled to be paid that part of the profits which is not required to be retained by law or by the articles of association or by the interests of the company. In the event that the above rights of the shareholder are infringed, the company may be liable for compensation or the conditions for the annulment of the relevant resolution on the distribution of profits adopted by the general meeting may be met. Each company, to the extent permitted by law, follows its own dividend distribution policy, taking into account, on the one hand, the corporate interest, according to which the retention of (all or part of) the profits in the company increases its liquidity and, consequently, its solvency and, on the other hand, the economic interest of the shareholders who have contributed their money to the company in anticipation of the economic benefit of its profitability. What, however, is provided for the distribution of the dividend to the shareholders of the public limited liability company? When does the claim of the beneficiary to receive the shareholder dividend arise and when is the claim of the shareholder to receive the dividend time-barred?

2. Distribution of dividend 

a. Minimum dividend (Art. 161 of Law 4548/2018):

The legislative provision for the (in principle) mandatory distribution to shareholders of the minimum dividend - which consists of 35% of the net profits remaining after deduction of the reservation for the formation of the ordinary reserve and other credit items in the income statement not derived from realised profits - is intended to protect the eligible shareholders from the risk of non-distribution of an amount as a dividend, despite the company's profitability. While such an option would benefit the company and its corporate creditors, given the strengthening of its liquidity, it would in fact affect the shareholders' property right to participate in profits, which is the main incentive to acquire shares in the company.  

In principle, the dividend is distributed to shareholders in cash. However, according to Art. 161 par. 4 l. 4548/2018, it may be paid in kind (e.g. in securities of domestic or foreign companies or distribution of other assets of the company, which must be valued) by a resolution of the General Meeting adopted by an increased quorum and majority or unanimity, in which the assets to be distributed are precisely specified. For a distribution in kind, the company must be subject to a mandatory or voluntary audit by a statutory auditor or audit firm. According to Art. 161 par. 3 l. 4548/2018, the General Assembly, by a decision taken with an increased quorum and majority, has the possibility to capitalize the profits corresponding to the minimum dividend to be distributed, proceeding to an increase in the company's share capital with a simultaneous distribution of shares to all shareholders, calculated at their nominal value. 

The following exceptions to the above mandatory distribution of the minimum dividend are provided for by law (Art. 161 par. 2 of Law No. 4548/2018).

Finally, it is stated that, by decision of the Board of Directors of the company, taken within the financial year, a temporary dividend may be distributed under the conditions set out in Art. 162 l. 4548/2018, which is subject to approval by the Annual General Meeting, which approves the financial statements of the respective financial year in which the temporary dividend was distributed. 

b. A further dividend from other profits: 

The profits remaining after the distribution of the first dividend shall be distributed in accordance with the provisions of the Company's Articles of Association and the decision of the Annual General Meeting. If the articles of association do not stipulate anything to this effect, the general meeting is free to decide on the distribution of the dividends and may distribute them as a further (second) dividend to the shareholders, provided that there is no other specific need for the company, in which case it may use them to form reserves, distribute them to employees, transfer them as retained earnings, etc. etc. The second dividend may also, instead of being paid in cash, be distributed in kind and capitalised, as stated above for the minimum dividend, except that the General Meeting decides by a simple quorum and majority. 

3. The shareholder's entitlement to the dividend

a. Legal nature of the claim and conditions for its creation:

A claim to dividend payment is the receipt by the shareholder of a certain amount (in principle) in cash from the company. The shareholder has a general right to participate in the profits of the company, as mentioned above. However, the entitlement to the dividend is only acquired when the General Meeting approves the financial statements and decides on the distribution of the profits. This claim is freely transferable (even when it derives from shares with restrictions on their transfer), and can be incorporated in a title (security) to the bearer (dividend warrant), and therefore the exercise of the right deriving from it and its transfer requires possession of the dividend warrant. Also transferable is the right (expectation) to payment of profits in future years. Furthermore, this claim may be pledged and seized, for example by any creditors of the shareholder entitled to the dividend. According to Art. 33 par. 5 l. 4548/2018, a prohibition or restriction on the possibility of transferring the relevant claim from the beneficial shareholder to a third party may be set by a statutory provision. Finally, the company has the right to offset the amount corresponding to the dividend of the beneficiary shareholder against any counterclaim against the latter for any reason. 

It is worth noting that the shareholder's claim for payment of the dividend, as approved by the relevant resolution on the distribution of profits adopted by the Annual General Meeting, is not affected without the consent of the shareholder beneficiary, even if the General Meeting subsequently revokes the relevant distribution resolution or, for example, limits the amount to be distributed. 

b. Shareholders entitled to receive dividends and shares participating in the distribution:

A person entitled to receive a dividend is anyone who, at the time the entitlement to receive a dividend arises, owns the share and it is irrelevant how long the relevant shares have been held since the acquisition of the shares concerned. In the case of co-ownership, the beneficiaries shall be all the several co-owners, each in proportion to his share in the co-ownership of each share. In the case of a pledged share, the beneficiary is the owner of the share and not the pledging creditor (Art. 1220 CC), who is entitled to receive the dividend, but only for the purpose of including the relevant amount in the debt secured by the pledge (Art. 1221-1222 CC). Finally, in the case of a usufruct over a share, the beneficiary of the dividend is the usufructuary (Art. 1142 CC). 

All shares are entitled to the dividend, and their participation in the total amount to be distributed, which depends on the profitability of the company, is proportional to their nominal value (Art. 35 l. 4548/2018: "shares belonging to one series or class may have a different nominal value from the others"). With regard to preference shares in particular, they grant more property rights and privileges to their holders than ordinary shares, and may, among other things, have a different percentage of participation in the distribution, as well as the payment of dividends for years for which no distribution was made because, for example, they were loss-making (see Art. 38 l. 4548/2018 and the provisions of the applicable articles of association of each company). Shareholders - holders of shares that have been amortized pursuant to Art. 32 ν. 4548/2018, but who normally participate in the distribution of any further dividend - in addition to the minimum dividend. Finally, in the event of a shareholder defaulting on all or part of the payment of his/her contribution, the shareholder is not entitled to receive a dividend. 

4. Limitation of the right to receive a dividend

The dividend (pursuant to Art. 160 par. 3 l. 4548/2018) shall be paid to the shareholders within two (2) months from the decision of the Annual General Meeting on the distribution of profits and the distribution of the specific amount as dividend (AP 1445/2014). The two (2) month period is a day of grace (Art. 341 (1) CC) and therefore, at the end of this period, the interest payment of the amount due to the shareholder by the company begins, without the shareholder being required to make a prior request to the company (Athens Court of First Instance 5266/1998). The shareholder's claim for the payment of the dividend by the company is time-barred, pursuant to Art. 250 No. 15 CC, five (5) years from the date when the relevant claim arose and could be pursued in court (Art. 251 CC). The five-year period begins as soon as the year in which the commencement of the limitation period coincides with the end of the year in which the balance sheet for the financial year was approved and the decision on the distribution of dividends was taken by the Annual General Meeting.

It should be noted that if the shareholder, who is entitled to receive a dividend, does not exercise the relevant claim within the five-year period, then the amount of the dividend accrues to the Greek State and does not remain with the company (Article 1 of Law 1195/1942, as ratified by Cabinet Act 315/30.5.1946). However, this five-year limitation period for the claim for dividends in favour of the State is interrupted if, during this period, the company liable for the dividend recognises the claim of the dividend payee in any way (Art. 260 CC). This can be done, for example, when the company transfers the amount of the dividend due from account 53.01 'Dividends payable' to the personal account of the dividend payee's, informing the payee accordingly. 

5. Foreword

In summary, the distribution to shareholders of a minimum dividend, if the financial year is profitable, is in principle mandatory. The right of the shareholder to receive a dividend from the company arises after the annual general meeting has taken the decision to distribute profits (in the context of the approved financial statements). Within two months of the adoption of the resolution, the company is obliged to pay the dividend to the shareholder. The shareholder's claim in this respect shall lapse five years after the end of the year in which the relevant decision of the annual general meeting was taken. Any lapse of five years without the shareholder having proceeded to seek satisfaction of his claim shall result in the relevant amount being transferred to the State.