Value of Dividend Imputation Tax Credits †Free Samples to Students

Question: Discuss about the Value of Dividend Imputation Tax Credits. Answer: Introduction: As per the constitution of FWPL, the directors take the decision of paying a dividend to A Class shareholders, which was sufficient for many years. Now, GML did not want to issue dividend instead they wish to retain their earning for organic vineyards development because Jason was stirring the Gallis grandchildren, many of which are lazy and undeserving. The shareholders invest in a corporation to earn dividend and increasing their value. As per the section 254W (2) of Corporations Act, 2001(Cth), the company has right to decide whether or not they distribute a dividend (Austlii 2017). In order to issue a dividend, the company is required to have profits, or they have fulfilled the obligations of their creditors. Section 232 protects the minority shareholder from companys oppressive conduct. The court has right to issue remedies against any operative misconduct by the company against its shareholders in section 233 (Cannavan, Finn and Gray 2004). The remedies include amending/modifying corporations constitution, winding up the order, buyback of shares, ceasing management from performing any specific action, and enforcing directors to performing specific actions. In the Thomas v H W Thomas Ltd (1984) 1 NZLR 686 case, the court provided three remedies for the oppressive conduct by a company (Gardyne 2007). The first condition was that the oppression was unfairly prejudiced discriminatory against the shareholders. The second term provides that the directors did not meet the reasonable expectation and the final condition was that providing the remedies is just and fair for the party. As per the section 245W (2) of the Corporations Act 2001, the directors have right to decide whether divided should be distributed or not. In this case, Galli has right to deny the distribution of dividend to the A Class shareholders. As per the decision provided in Thomas v H W Thomas Ltd (1984) 1 NZLR 686 case, the court provided three conditions which are necessary to be fulfilled to constitute a conduct as oppressive. Galli decided to use the profits to develop the operations of the business also there is lack of any oppressive behavior by the company. It would be unfair and unjust if the court awards the remedies which are provided under section 233 of the act. In conclusion, the non-availability of any oppressive conduct by the company will dismiss the action taken by the Gallis grandchildren, and the court cannot force the company to distribute a dividend. The level of dissatisfaction in between A Class shareholders is concerning for Mario and Nick Galli. Therefore, they decided to buy back the shares by valuing them from an independent expert. The primary issue, in this case, is regarding the benefit of buyback of shares and the condition which are required to be fulfilled by the company while buying back their shares. When a company decides to repurchase it share from the market or require its stock, it can be defined as buyback o shares; it is also known as share repurchase. The buyback can be described as the process of investing in it by a company or providing a buy out to the shareholders (Coulton and Ruddock 2011). There are numerous benefits of the repurchase of shares by an enterprise, such as taking advantage of the low price of stock in the market, removing a weak class of shares, improving the financial ratio, increasing the companys ownership, and defense against a hostile takeover. The buyback of shares also increases the share value of the company when they reissue such shares in the stock market (Kandarpa 2016). In Australia, the Corporations Act and the Australian Securities and Investment Commission provides the provision regarding buyback of shares by a company. The part 2J.1 division 2 of the Corporations Act provide the requirement which must be followed by an organisation while taking a decision of buyback of shares. The section 257A of the act provides that business has to disclose information while buying back their shares, which include a report by an independent expert (Brown 2007). The corporation is required to appoint an independent expert for valuation of the stock which is to be buyback and the report of such expert is sent by the firm to ASIC. Selective buyback of shares is when a company did not give a same option of buyback to shareholders meaning the price and percentage of shares from a different shareholder is different (ASIC 2013). The transaction results in the transfer of ownership of such share from the existing shareholders to the firm. Unlike the purchase and sale of a share, these stocks are canceled by the company, and any right relating to such shares are suspended after the buyback. The company can buy back its share after fulfilling the requirement mentioned above. The corporation is requiring hiring an independent expert of the field and valuing the share which they decided to buy back. The report provided by such independent expert is sent by the company to ASIC to ensure that shareholders are not paid any less in the buyback. After buying the shares, the company can cancel such shares which will suspend any rights attached to such shares. In conclusion, the requirement mentioned above must be fulfilled by the company in order to buy back its share from the shareholders. The FWPL wanted to get rid of the share in A Class by reducing the capital of the company. The primary issues, in this case, are regarding the provision of capital reduction by a firm and the consent which is necessary to be acquired by the company. The capital reduction process means reducing the companys shareholder equity through share cancellation or repurchase. It can also be described as the process of reducing the equity held by the shareholder by the methods provided under Corporations Act (Twite 2001). The capital reduction method also assists in improving the efficiency of the capital structure of the company (Nanda 2015). The section 256C of the Corporations Act provides provision regarding the capital reduction; a company can reduce its share capital if it is reasonable to the shareholders and the reduction did not adversely affect the payment of creditors (Austlii 2017). The approval of shareholder is necessary to be taken by the company. The section 258A and 258FA provide the provision of cancellation of the shares. The company is required to fill the Form 484 and submit it to the ASIC after canceling its shares. The capital reduction process is more beneficial for the company as compared to share buyback option. The company can reduce the chances of an oppression case if they select the capital reduction method. The company is required to provide the evidence that capital reduction procedure will not adversely impact the payment of creditors. In conclusion, the company should choose the capital reduction method instead of the buyback as it would require the permission of shareholders. References ASIC., 2013. Share buy backs. ASIC. Retrieved from https://asic.gov.au/for-business/running-a-company/shares/share-buy-backs/ Austlii., 2017. Corporations Act 2001 Sect 254W. Austlii. Retrieved from https://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s254w.html Austlii., 2017. Corporations Act 2001 SECT 256C Shareholder approval. Austlii. Retrieved form https://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ca2001172/s256c.html Brown, C., 2007. The announcement effects of off-market share repurchases in Australia.Australian Journal of Management,32(2), pp.369-385. Cannavan, D., Finn, F. and Gray, S., 2004. The value of dividend imputation tax credits in Australia.Journal of Financial Economics,73(1), pp.167-197. Coulton, J.J. and Ruddock, C., 2011. Corporate payout policy in Australia and a test of the life?cycle theory.Accounting Finance,51(2), pp.381-407. Gardyne, P., 2007. Shareholders-Fiction, Rights, and Remedies.Waikato L. Rev.,15, p.212. Kandarpa, K., 2016. What is the Purpose of a Share Buyback and How can Shareholders Benefit from it?. Wise Owl. Retrieved from https://www.wise-owl.com/investment-education/what-is-the-purpose-of-a-share-buyback-and-how-can-shareholders-benefit-from-it Nanda, D. S., 2015. Reduction of Share Capital: Analysis. Corporate Law Reporter. Retrieved form https://corporatelawreporter.com/2015/02/23/reduction-share-capital-analysis/ Twite, G., 2001. Capital structure choices and taxes: Evidence from the Australian dividend imputation tax system.International Review of Finance,2(4), pp.217-234.