Q: What is the correct procedure and frequency for meetings to decide on payments of dividends to directors for small businesses?
May 23 2010
Answered by: Clive Lewis Ask a question
Payments of dividends must usually be approved by the Board of Directors and the shareholders. However the Articles of Association (which define the internal rules of the company) may allow the directors only, under their general powers, to declare dividends. In practice this is usually Interim dividends. The Final dividend requires the approval of the shareholders in a general meeting. Meetings of the Board of directors must be minuted. Shareholder meetings must also be minuted.
Dividends from UK resident companies are taxed when they are “paid”. Dividends are treated as paid on the date when an enforceable debt is created. In the case of interim dividends this is when it is paid and a final dividend becomes an enforceable debt when it is approved by company resolution in the shareholders meeting.
A company can pay any number of Interim dividends but only one Final. However, the law requires that dividends are only paid if there are profits available for that purpose. So that means accounts have to be prepared to enable the directors to determine the profits position. In practice this usually means the maximum number of dividends is four after quarterly accounts are prepared. The cost of preparing accounts to the standard required more frequently would usually be prohibitive.
Shareholders must receive a dividend warrant informing them of the rate of dividend per share, the total net dividend and the tax paid.
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