I. Dividend After the Sale of a Share – Why Does the Timing of the Claim Matter?
A dividend after the sale of a share often becomes a source of dispute between a former and a new partner, particularly where the company was already profitable before the share was transferred or the partners’ meeting had already adopted a resolution on profit distribution.
At first glance, the issue may appear simple: if a partner sells their share, the economic rights associated with that share should also pass to the new owner.
However, the legal position is more complex when it comes to dividends.
It is necessary to distinguish between:
- a partner’s general right to receive dividends;
- and an already accrued specific claim for payment of a dividend.
Under the Law of Georgia on Entrepreneurs, the right to claim a dividend arises in favour of the person who is a partner of the LLC at the time when the resolution on dividend distribution is adopted.
Therefore, a dividend after the sale of a share is primarily a matter of chronology: was the dividend distributed first and the share sold afterwards, or was the share transferred first and the company adopted the profit distribution resolution only later?
The Supreme Court of Georgia addressed this distinction in Case No. ას-1521-2022, treating an already accrued dividend claim as a proprietary claim independent from the share itself.
1. General Right to Receive Dividends
From the moment a person becomes a partner, they acquire a general corporate right to participate in the company’s profits.
This right is linked to the partner’s status and their share.
If the partner transfers their share to another person, they cease to participate in the company as the owner of that share. Accordingly, future economic rights associated with the share will, as a general rule, relate to the new partner.
Where a transaction results in the entry of a new investor into an LLC, the parties should therefore assess not only the transfer of ownership but also the economic rights connected with the company before and after the transaction.
2. Specific Right to Claim a Dividend
The position is entirely different where the partners’ meeting has already adopted a resolution on profit distribution.
From that moment, a specific monetary claim may arise in favour of a particular partner.
In such a case, the relationship is no longer limited to the partner’s general corporate status. The partner may also become a creditor of the company in respect of a specific monetary amount.
This distinction determines who is entitled to the dividend after the sale of the share.
II. Company Profit and a Dividend Claim Are Not the Same
When a share is sold, a common argument is that because the company generated profit while a person was still a partner, that person should also be entitled to the relevant dividend from that profit.
However, this conclusion is not automatically correct.
The fact that the company generated profit does not, by itself, mean that the former partner already acquired a claim for payment of a specific amount.
1. Profit Remains the Company’s Property
Until the authorised corporate body adopts a decision on profit distribution, the company’s financial profit remains an asset of the company itself.
The partner has a general right to participate in the distribution of profits, but does not necessarily yet have a claim for payment of a specific amount.
Accordingly, merely pointing out that the profit was generated while the person was still a partner is not always sufficient.
2. The Profit Distribution Resolution Is Decisive
Under Article 145 of the Law on Entrepreneurs, a specific dividend claim arises in favour of the person who is a partner at the time the decision on dividend distribution is adopted.
Therefore, the relevant date for determining partner status is not necessarily the year in which the profit was generated, but rather the date when the profit distribution resolution was adopted.
This distinction is particularly important in the context of a share sale.
Where a dispute concerns whether a dividend claim has already arisen, a separate analysis of the right to claim dividends may be required.
III. What Happens If the Dividend Was Already Distributed Before the Share Was Sold?
This is the first major scenario.
Assume that a person is a partner in a company. The authorised body adopts a resolution allocating a specific dividend to that partner from the previous year’s profits.
The partner then sells the share to a third party.
Who is entitled to the amount already allocated?
According to the Supreme Court of Georgia’s judgment in Case No. ას-1521-2022, if the dividend claim had already arisen before the share was transferred, it constitutes an independent proprietary claim and does not automatically transfer to the new partner solely because the share was later sold.
1. The Former Partner May Remain a Creditor of the Company
Once the decision on dividend distribution has been adopted, the legal position of the partner changes.
In respect of the relevant amount, the partner may become a creditor of the company.
If the partner subsequently sells the share, they lose their status as a partner, but the already accrued monetary claim does not automatically disappear as a result.
Therefore, a dividend after the sale of a share may still belong to the former partner.
2. The Key Question Is Whether the Claim Was Also Transferred
A different outcome may arise where the parties expressly agree that, together with the share, the already accrued dividend claim will also be transferred to the new partner.
Therefore, the mere fact that the share was sold is not sufficient.
The content of the transaction must also be examined.
IV. Supreme Court Case No. ას-1521-2022
The issue of a dividend after the sale of a share was addressed particularly clearly by the Supreme Court of Georgia in Case No. ას-1521-2022.
In that case, 100% of the company’s shares were initially owned by one partner.
Before the partner transferred the shares, a resolution had been adopted determining a specific dividend from the previous year’s profits.
The entire 100% shareholding was subsequently transferred to a new owner.
The dispute concerned the entitlement to the remaining unpaid dividend.
1. Main Question Before the Court
The Supreme Court had to determine whether the transfer of the entire shareholding also resulted in the transfer to the new partner of the previously accrued dividend claim.
The Court distinguished between:
the right to receive dividends – which is linked to partner status;
and
the right to claim a specific dividend – which, following a decision on distribution of a particular profit, becomes an independent proprietary claim.
2. Court’s Conclusion
In Case No. ას-1521-2022, the Court held that, because the specific dividend had been determined while the former owner was still a partner, that person had already acquired an independent claim.
The subsequent transfer of the share did not automatically transfer that claim to the new owner.
Accordingly, the former partner retained the status of a creditor of the company in respect of the relevant amount.
This is the central principle to consider when analysing a dividend after the sale of a share.
V. What Happens If the Share Was Sold Before the Dividend Was Distributed?
A completely different situation arises where the partner first sells the share and the company adopts the profit distribution resolution only afterwards.
In that case, the former partner may not have acquired any specific dividend claim at all.
1. The Person Must Be a Partner at the Relevant Time
Under Article 145 of the Law on Entrepreneurs, the right to claim a dividend arises in favour of the person who is a partner of the LLC at the time when the dividend distribution resolution is adopted.
Therefore, if the person is no longer a partner at the relevant time, the fact that the profit was generated during the period of their partnership is not sufficient by itself to establish a specific dividend claim.
2. Position of the New Partner
If the purchaser of the share is already a partner at the time when the company adopts the profit distribution resolution, the right to claim the particular dividend may, as a general rule, arise in favour of that person.
When acquiring a share, it is therefore important to assess not only the company’s current balance-sheet position, but also whether decisions have already been made regarding the distribution of profits from previous periods.
This is also relevant when planning the entry of a new investor into an LLC, because the timing of the transaction may affect both ownership and the allocation of economic rights.
VI. Does the Year in Which the Company Earned the Profit Matter?
The year in which the profit was generated and the moment when the dividend claim arose may be different.
A company may earn profit in 2025, while the partners decide to distribute that profit only in 2026.
If the identity of the partner changes between those two dates, the question of entitlement to a dividend after the sale of a share arises.
The former partner may argue that the economic result was created while they were still a partner.
However, the legal accrual of a specific dividend claim does not coincide merely with the date on which the profit was generated.
An appropriate profit distribution resolution is required.
Therefore, at least the following events should be distinguished chronologically:
- the period in which the profit was generated;
- the date of the profit distribution resolution;
- the date of the share transfer;
- and, where relevant, the date of payment of the dividend.
The sequence of these events may completely change the legal outcome.
VII. Does an Already Accrued Dividend Claim Automatically Transfer to the Purchaser of the Share?
No. This is one of the important conclusions of Case No. ას-1521-2022.
Together with the share, the new partner acquires the status of partner and the corporate rights associated with that status.
However, an already accrued dividend claim is a different type of right.
1. Independent Monetary Claim
Once a dividend distribution resolution has been adopted, the partner may have a defined monetary claim against the company.
Such a claim can exist independently of the share whose ownership originally formed the basis for its creation.
For this reason, it does not automatically “follow” the share when the share is sold.
2. Separate Legal Basis Is Required to Transfer the Claim
If the parties want the previously accrued dividend claim to transfer to the purchaser of the share as well, this issue should be regulated separately.
In its judgment in Case No. ას-1521-2022, the Supreme Court explained that the agreement should specifically address the transfer of the existing dividend claim if the parties intend to achieve that result.
Accordingly, the wording of the share purchase agreement has significant practical importance.
VIII. Why Does the Share Purchase Agreement Matter?
A dividend after the sale of a share may often become a matter of contractual interpretation.
Where the company has profits available for distribution or profits that have already been distributed, the parties should determine before entering into the transaction how those amounts will affect the price of the share and their relationship.
1. The Word “Share” Alone Does Not Cover Every Claim
The parties may state in the agreement that the seller transfers a specific company share to the purchaser.
However, where the seller already holds an independently accrued monetary claim against the company, the transfer of the share does not always mean that this claim is also transferred.
The economic substance of the transaction and its legal drafting should therefore correspond.
2. Uncertainty Increases the Risk of Dispute
If the agreement says nothing about dividends, the parties may later interpret the transaction in completely different ways.
The seller may believe that an already accrued dividend remained with them.
The purchaser may assume that the purchase price reflected all economic benefits related to the company.
Such uncertainty creates a significant risk of subsequent litigation.
Where a company has several shareholders or a future transfer is anticipated, these risks may also be addressed in advance through a properly drafted Shareholders’ Agreement, together with appropriately structured transaction documentation.
IX. What Happens If the Agreement Does Not Mention Dividends at All?
In that case, the decisive issue is whether a specific dividend claim had already arisen at the time the share was sold.
If the claim had not yet arisen, it remains a future corporate right associated with the share.
If the claim already existed, its legal position is different.
1. Already Accrued Claim
In Case No. ას-1521-2022, the parties did not have a separate agreement assigning the dividend claim.
The Court therefore concluded that the claim which had arisen before the transfer of the share remained with the former partner.
2. Every Agreement Must Be Assessed Individually
This judicial approach should not be interpreted as meaning that the dividend claim will always remain with the seller in every transaction.
If the share purchase agreement expressly includes the relevant claim, the legal outcome may be different.
The decisive factors are therefore the wording of the particular agreement and the corporate circumstances existing at the time it was concluded.
X. Can a Former Partner Claim a Dividend from the Company?
Yes, if the former partner’s specific right to claim the dividend arose before their partnership ended and was not subsequently transferred to another person.
Loss of partner status following the sale of the share does not automatically extinguish an already accrued creditor claim.
1. Difference Between the Status of Partner and Creditor
A person may no longer be a partner of the company, but may still remain a creditor of the company in respect of a particular monetary claim.
This is one of the most important legal consequences explained by the Supreme Court in Case No. ას-1521-2022.
2. Scope of the Claim
A former partner cannot claim indefinitely all profits earned by the company during the years in which they were a partner.
Any possible claim must be based on a specific legal right that had already arisen.
For this reason, the relevant corporate resolutions should be reviewed before litigation is initiated.
If the dispute concerns the existence or scope of the dividend claim itself, the legal principles discussed in our article on the right to claim dividends may also be relevant.
XI. Does a Former Partner Retain Access to Company Information?
This is a separate issue.
Once the share is sold, the person loses partner status and the future corporate rights deriving from that status.
The fact that a former partner may retain a monetary claim against the company does not automatically mean that all information rights previously available to the partner remain in force.
1. A Monetary Claim Does Not Restore Partner Status
In Case No. ას-1521-2022, the Supreme Court considered not only the dividend claim but also a request for access to the company’s financial documentation.
The Court distinguished the claim of a former partner acting as a creditor from the rights connected with that person’s previous corporate status.
Accordingly, the preservation of an accrued dividend claim does not mean that the person continues to be regarded as a current partner.
2. A Separate Legal Basis Is Required for Access to Information
If a former partner requires certain documents to substantiate a claim, the legal mechanism for obtaining those documents cannot automatically be equated with the ordinary corporate right of a partner to receive information.
Therefore, the issues of a dividend after the sale of a share and access to company information should be assessed independently.
For current shareholders, access to information forms part of a broader set of minority shareholder rights in an LLC.
XII. What Happens in the Case of a Partial Sale of a Share?
In practice, a partner does not always sell their entire interest.
For example, a partner may hold a 50% share and transfer only 20%, retaining a 30% interest in the company.
In such cases, it is particularly important to determine when the relevant dividend claim arose.
1. Already Distributed Dividend
If the particular dividend claim arose before the partial transfer of the share, its subsequent legal treatment should again be assessed according to the terms of the transaction.
The fact that the partner transferred part of the share does not, by itself, automatically transfer a corresponding part of the existing claim to the purchaser.
2. Future Dividend
For profit distributions adopted in later periods, the partners will generally participate according to the new shareholding structure, unless the articles of association or another relevant legal basis establishes a different regime.
Accordingly, in a partial transfer, both chronology and the size of the transferred share become relevant.
XIII. What If the Share Price Already Reflected the Company’s Undistributed Profit?
This is an economically realistic but legally significant scenario.
The purchaser may pay a higher price because the company has substantial retained earnings.
The former partner may later claim that the dividend from the previous period still belongs to them.
1. Economic Expectation and Legal Right
An economic expectation does not necessarily change the legal ownership of an already accrued claim.
If a specific dividend claim already existed, it must be assessed whether that claim was transferred to the purchaser.
2. Importance of Proper Contract Drafting
To avoid uncertainty, the share transfer agreement should address in advance:
- dividends that have already been declared;
- profits that have not yet been distributed;
- existing monetary claims of the partner;
- and how these matters are reflected in the economic price of the transaction.
These issues become particularly important in transactions involving shares in companies of significant value.
A well-structured Shareholders’ Agreement may also establish broader rules for future share transfers, economic rights and exit arrangements between shareholders.
XIV. What If the Dividend Had Not Yet Been Declared but Distribution Was Practically Expected?
Even in this situation, a distinction must be made between an existing legal claim and an economic expectation.
For example, a company may end the financial year with significant profits and the partners may informally agree that a dividend will soon be distributed.
If a partner sells the share before that happens, the question cannot be resolved solely on the basis of the parties’ expectations.
1. Corporate Resolution Has Legal Significance
The adoption of the relevant resolution by the authorised corporate body is decisive for the creation of a specific dividend claim.
Therefore, financial statements or informal discussions between partners cannot always substitute for the necessary corporate decision.
If the legality of the relevant profit distribution resolution itself is disputed, it may be necessary to assess whether there are grounds for challenging the Shareholders’ Meeting resolution.
2. Parties to the Transaction Should Address This Situation in Advance
If, at the time of the share sale, it is already known that the company has substantial undistributed profits, it is advisable for the parties to determine in advance what will happen if those profits are later distributed.
Otherwise, the economic expectations of the former and new partner may diverge significantly after the transaction.
XV. Dividend After the Sale of a Share and the Share Price
When determining the value of a share, the company’s financial position, including retained earnings, may be an important factor.
The dividend issue therefore cannot always be separated from the price of the transaction.
1. Risk of Counting the Same Economic Value Twice
If the parties fully reflected a certain financial result of the company in the share price but did not determine in the agreement what would happen to an already accrued dividend claim, a dispute may later arise over the economic benefit that each party expected from the transaction.
Therefore, a dividend after the sale of a share is not only a matter of corporate law – it may also be directly connected with the economic terms of the share purchase transaction.
2. Legal and Financial Due Diligence
Particularly before acquiring a significant share, the company’s financial statements and partners’ resolutions should be reviewed together.
The purchaser should understand not only the company’s assets and liabilities but also whether any former or existing partners already have accrued dividend claims against the company.
This kind of review is particularly important when a new investor enters an existing LLC.
XVI. Can a Dividend Claim Be Transferred Separately?
An already accrued dividend claim acquires the nature of an independent proprietary claim.
Accordingly, despite its connection with the share, it may, subject to the relevant legal requirements, be transferred separately.
1. Transfer by the Partner
In its judgment in Case No. ას-1521-2022, the Supreme Court explained that a specific dividend claim may be transferred independently to another person.
At that stage, whether the person is a former or current partner is no longer the central issue. What matters is the existence of the claim and its valid transfer.
2. Transfer of the Share and Transfer of the Claim Are Separate Matters
In practice, there may therefore be two separate legal events:
one – the transfer of the company share;
the other – the assignment of an already accrued dividend claim.
If the parties want both to be transferred simultaneously, it is particularly important that the agreement regulates this clearly.
XVII. Dividend Claims and Disputes Arising from the Sale of a Share
Sometimes a dividend after the sale of a share is not an isolated dispute but part of a broader conflict.
The parties may simultaneously disagree about:
- the purchase price of the share;
- interpretation of the agreement;
- the company’s historic financial results;
- obligations owed to the former partner;
- or other terms connected with the transfer of the share.
1. A Claim Against the Company May Not Be the Only Issue
The company may be responsible for paying the dividend, while separate contractual issues may simultaneously exist between the former and new partner.
It is therefore important to distinguish between:
- the dividend claim against the company;
- and the legal relationship between the seller and the purchaser arising from the share purchase agreement.
2. Correct Legal Characterisation of the Dispute
Failing to distinguish these issues correctly may result in a claim being brought against the wrong party or in separate legal relationships being improperly combined.
For this reason, a post-sale dividend dispute should be assessed in the context of the entire transaction and the company’s corporate history.
Where the conflict extends beyond the dividend itself, it may form part of a broader shareholder dispute requiring coordinated legal representation.
XVIII. What Should Be Assessed Before a Share Is Sold?
Before transferring a share, checking only the company extract is not sufficient.
Particularly where the company is an operating and profitable business, it is important to determine:
- whether there are undistributed profits from previous years;
- whether any resolutions on dividend distribution have been adopted;
- whether any declared but unpaid dividends exist;
- in whose favour the relevant claim arose;
- and how all these matters should be reflected in the terms of the transaction.
This is not a universal checklist. Depending on the company and the particular transaction, other issues may also be relevant.
1. For the Seller
The seller should understand in advance which economic rights will be retained following the transfer and which rights will be transferred to the purchaser.
2. For the Purchaser
The purchaser should determine whether any amounts reflected in the company’s balance sheet constitute liabilities owed to a former partner.
Ignoring this issue may alter the economic assessment of the acquisition.
XIX. Dividend Disputes and the Broader Relationship Between Partners
Sometimes a dividend claim following a share sale is the final stage of the relationship between former partners.
However, among current partners, dividend issues are often part of a broader corporate conflict.
In such a case, issues concerning access to information, profit distribution, partners’ meeting resolutions, or the conduct of the director may arise simultaneously.
In practice, such relationships should be assessed not only by reference to a particular monetary amount, but also in the context of the company’s overall corporate structure.
Where the issue forms part of a wider shareholder dispute, several interrelated corporate issues may require assessment together.
XX. When Might Legal Assistance Be Necessary?
A dividend after the sale of a share particularly requires legal assessment where:
- the dividend distribution resolution was adopted before the share was transferred;
- the company does not pay a dividend that had already been allocated to the former partner;
- the new partner argues that the dividend claim was transferred together with the share;
- the share purchase agreement does not regulate dividends at all;
- the parties dispute what was included in the purchase price of the share;
- the company has undistributed profits from previous years;
- or the parties to the transaction have different understandings regarding economic rights arising from previous periods.
The resolution of each case depends on the specific chronology, the company’s corporate resolutions, and the wording of the share transfer agreement.
XXI. Conclusion
A dividend after the sale of a share does not automatically always remain with the former partner, nor does it automatically always transfer to the new partner.
First, it is necessary to distinguish between the general right to receive dividends and an already accrued specific dividend claim.
If a partner sells the share before the company adopts a resolution on profit distribution, the former partner will generally not yet have acquired a specific dividend claim.
The position is different where the dividend distribution resolution was adopted while that person was still a partner.
The Supreme Court of Georgia explained in Case No. ას-1521-2022 that an already accrued dividend claim is an independent proprietary right and does not automatically transfer to the new partner as a result of the subsequent transfer of the share. If the parties also intend to transfer this claim, that legal result should be separately addressed in the transaction.
Therefore, answering the question “who is entitled to the dividend after the sale of the share?” requires a combined assessment of three key issues: when the profit distribution resolution was adopted, when the share was transferred, and what the share transfer agreement provides.
TB Legal’s corporate law practice covers the legal assessment of partners’ proprietary rights, dividend claims, share transfers, and other corporate relationships arising between partners.
Preventing such disputes also requires appropriate contractual and corporate structuring before the share transfer, including careful transaction documentation and, where relevant, a tailored Shareholders’ Agreement.
If the ownership of an already accrued dividend becomes disputed after a share transfer, or the share purchase agreement does not clearly regulate the issue, contact TB Legal for an individual legal assessment.
TB Legal assists companies and partners both with structuring corporate relationships and share transfers in advance and with the legal management of disputes that have already arisen.
