You must usually pay dividends to all shareholders. To pay a dividend, you must: hold a directors’ meeting to ‘declare’ the dividend. keep minutes of the meeting, even if you’re the only director.
Does the board of directors determine dividends?
The board of directors is the corporate body that determines whether dividends are paid to shareholders, according to “The Law of Corporations: In a Nutshell” by Robert W. Hamilton.
The short answer is yes. But to pay unequal dividends, your shareholders must hold different classes of shares. The different classes of shares that limited companies can issue are called ‘alphabet shares’.
Dividends are the most common way of rewarding shareholders for the value in their shares. However, shareholders are not obliged to receive dividends from the company concerned and they can choose to waive dividends. This may seem an odd thing to do, but there can be situations where this may be useful.
Waiving your rights to dividends may be perfectly legal under company law, but it is caught by anti-avoidance provisions or the ‘settlement’ rules for tax purposes. A shareholder can waive his or her right to have a dividend paid to them.
Do all directors need to approve dividend?
In most companies, the company directors must hold a board meeting to officially ‘declare’ interim dividends. To issue a final dividend, meanwhile, shareholders must grant their approval by passing an ordinary resolution at a general meeting, or in writing.
How does a board of directors decide to declare a dividend?
A company’s accountants or comptroller recommends a dividend to the board of directors. The board reviews the company’s financial statements and considers the dividend. If the board feels that a dividend is warranted, it votes to approve the payment. The declaration date is the day the approval is granted.
How do companies decide to pay dividends?
The dividend payout amount is typically determined through forecasting long-term earnings and calculating a percentage of earnings to be paid out. Under the stable policy, companies may create a target payout ratio, which is a percentage of earnings that is to be paid to shareholders in the long-term.
Subject to any restrictions in the articles of association, this form of dividend can be declared by directors without any need to gain approval from shareholders. Any decision to pay an interim dividend must be on the basis of relevant interim accounts which should be filed with Companies House.