Dividend basics

In many small companies, the main shareholder or shareholders are normally also the directors. You must follow the rules.

A dividend is considered illegal when a company pays out more than its available profits or fails to follow correct procedures.

Dividends have 2two main uses:

• to reward investors in companies
• a way for directors (if they are also shareholders) to take income from their company

Before any dividends can be paid out, they must be declared and recorded formally.

They can be paid out at any time of the year.

You can only take dividends from retained company profits.

Dividends and tax

Every shareholder that receives a dividend from a company may need to declare the amount to HMRC.HMRC.

If your company cannot afford to pay out dividends, but they are still taken, they are treated as a loan and must be paid back.

Dividends for directors

If you are a director and a shareholder of a company, dividendsyou canmay bereceive takendividends as part of your annualoverall remuneration.

BeforeDividends from the company should only be paid from available profits. If dividends are paid to you considerwhen the company does not have sufficient profits to support them, they will usually be treated as a director’s loan and must be repaid.

Before taking or paying out dividends, ityou should consider obtaining professional advice to ensure the payment is importantlawful and appropriate.

If a company later becomes insolvent, paying unlawful dividends can have serious consequences. These include:

• being required to getrepay professionalany financialdividends adviceyou received
• personal liability for losses suffered by the company
• director disqualification proceedings

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