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A quick guide to dividends

By November 16, 2018Uncategorized

There are some aspects of running a business that can strike fear into the heart of even the most competent CEO or company director, and one of them is dividends.

That’s why we’re here to break everything down. So let’s take a look at exactly what dividends are, and why it’s essential that you work with an accountant to ensure everything goes smoothly.

What exactly are dividends?

When a limited company makes a profit, it can – and generally will – hand out a certain amount of this excess money to shareholders. It is worth noting that this only relates to the money that is left over once all other outstanding taxes and expenses have been taken care of.

The dividends will be dished out based on how many shares each shareholder has. So, if someone owns three-quarters of all the company shares, they will receive 75% of the entire dividend payout.

The legal bit

In order to fully comply with all legal requirements, companies will need to conduct a board meeting during which a ‘dividend declaration’ will be confirmed. For legal reasons, it is also essential that the minutes are accurately recorded as part of this meeting, although how the minutes are taken – and how comprehensive they are – is entirely up to the company director(s).

It is also vital that each shareholder is given a ‘dividend voucher’, which can be redeemed once it comes to the time when dividends are handed out. This can be either physical or electronic, but should be in the same format for each shareholder.

This voucher should state:

– The date it was issued
– The official name of the company
– The shareholder’s full name
– The shareholder’s number of shares
– The amount of money that is set to be paid to the shareholder
– The name(s) and signature(s) of the company director(s)

The role of the accountant

Most accountants tend to suggest that companies pay dividends on either a quarterly, bi-annual, or annual basis. At the end of the day, this is entirely up the discretion of the director(s), but should certainly be discussed with your accountant before a decision is made.

The most important role an accountant can play in this matter is to ensure that dividend distributions fully comply with legal requirements. Quite simply, this means you, as the company representative, must ensure you have enough money to fulfil all business obligations, while also giving shareholders what they have been promised.

Accountants can also help when it comes to approaching new shareholders, as well as with detailed tax planning. Basically, when it comes to ensuring your business is financially compliant as well as profitable, working with an accountant is crucial.

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