In the first portion of our Wilder Coe Ltd Knowledge series, we’ll be discussing the finer details of company dividends and their distribution with Wilder Coe Ltd partner, Ian Saunders, who has over 25 years of experience in Company Formation and Secretarial services.
Types of Dividend
When it comes to distributing dividends to company shareholders, there are two types of dividend to consider: an interim dividend and a final dividend.
Whilst the procedure for formalising each type of dividend differs, both require prior authorisation from the Board of Directors and can only be declared and paid if the company has sufficient distributable reserves.
Simplified, the differences that exist in the declaration and approval of each type of dividend are as follows:
- Interim dividends are declared and approved during a company’s accounting period,
- A Final dividend is approved at the company’s annual general meeting
However, before ech dividend can be declared, approved or paid, the company must establish the following criteria:
- Does it have sufficient distributable reserves?
- What is the total amount to be paid?
- What is the dividend payable per share? If the company has more than one class of share, then the rights attached to each class must be carefully considered
Paying an Interim Dividend
Once the above criteria have been established, interim dividends require:
- A board meeting be held to approve the payment of the dividend
- Dividend vouchers should be prepared, setting out the amount paid to each shareholder and their tax credit according to the number of shares registered in their name,
- A board minute should be produced that details the decision to pay the dividend and should record if any shareholders ave waived their right to a dividend
Paying a Final Dividend
Final dividends will be approved at the company’s annual general meeting where the company’s accounts are approved if sufficient profits are available.
Once these formalities have been completed, the company may proceed with the payment of the dividend to its shareholders.
In order to avoid being challenged by HMRC, it is vital for companies to follow the correct procedure when paying dividends and to ensure that dividends paid are properly recorded in the company records.
Need further advice?
Ian Saunders and his dedicated team would be pleased to discuss your requirements, provide any further information you may require and help you prepare the necessary documentation that will allow you to distribute dividends appropriately.
Give Ian a call on 020 7616 880 or email at email@example.com