Dividends: Interim and Final
Dividends are how a company shares its profits during and at the end of the year and they provide a way for shareholders to extract value from a company.
When deciding to declare a dividend, directors have to be certain there are enough distributable profits or reserves to make the payment. Directors also need to consider their duties to the company ensuring that their actions are promoting the success of the company. If it is not done and recorded correctly the directors could potentially face an investigation by a liquidator in the event that their company becomes insolvent. Dividend payments are often the first thing to be questioned during such a scenario so it must be done right.
An interim dividend can be paid at any time by a decision of the directors – shareholder approval is not required for interim dividends. It is imperative that you consult your company’s articles of association to ascertain who can declare an interim dividend before you get started.
Final dividends are paid once a year following the annual accounts and are subject to the articles of association. Directors need to make a recommendation about the amount of final dividend to the shareholders and they can then approve it or increase or decrease the amount. The final dividend needs to be approved by an ordinary resolution passed by a simple majority.
Directors cannot draw money from a company then define it as a dividend after the event has taken place. The dividend must be declared before it is paid therefore drafting the correct paperwork and obtaining the correct approvals is essential. You will need minutes of a meeting of the board of directors or a resolution of the sole director for both interim and final dividends. If you are recommending a final dividend then you will also need to pass a shareholder resolution by way of written resolution or general meeting depending on the number of shareholders and the logistical issues that come with that.
Please contact M & N Group Limited if you need advice about the process for paying a dividend or help drafting the necessary paperwork. We pride ourselves on our great customer service and competitive pricing.