This guidance note is intended to give an overview of the procedures and some practical issues involved in making dividend payments from a limited company.
For an analysis of dividend planning and the extraction of profit, see the Dividends ― planning issues guidance note.
Procedure for valid dividend payments
Before undertaking work on preparing dividend documentation for a client, it is vital to ensure that any actions are in accordance with the requirements of any necessary professional body and that the services are covered within the terms of engagement as well as by professional indemnity insurance.
The payment of a dividend is governed by a company’s Articles of Association. Unless otherwise stated, this will be in accordance with Companies (Tables A to F) Regulations, SI 1985/805, Sch, paras 102–108.
There are essentially two types of dividend:
There are slightly different procedures for the payment of each type, but the underlying principle is the same. The dividends must be authorised by the directors after suitable consideration of the company’s distributable profit. A final dividend is simply distinguished by the fact that they are approved at the company’s annual general meeting (AGM). This is done when the final accounts are signed off so there is an ‘automatic’ consideration of the company’s distributable profits.
Procedure for payment of interim dividends
The procedure for payment of an interim dividend is as follows:
establish the distributable reserves
determine the total amount to be distributed
calculate the dividend per share
hold a board