How much Dividend can I Take?

There is sometimes the belief that dividends can be paid out of any cash that happens to be in the bank account at the time. But this is simply not true.

A company can distribute the whole of its accumulated realised profits less its accumulated realised losses, which means the underlying accounts have to be considered before a dividend can be paid.

Dividends may not be paid out of capital. So, for example, a dividend based on accounts which show available profits would be ultra vires if made after subsequent losses have eliminated those profits.

 Any directors who pay an unlawful dividend may be held personally liable to account for it to the company.

The Companies Act makes shareholders liable to repay a distribution if, at the time of the distribution, they knew, or had reasonable grounds for believing, it to be illegal.

The stand out point here is that before declaring a dividend, the directors must be as certain as they can be that there are sufficient distributable reserves available to do so, after taking into account any corporation tax on profits earned, or losses incurred.

The best way to be sure is to always have a set of reliable management accounts prepared using the same accounting policies as the annual accounts so as to give a true and fair view of profits, losses, assets and liabilities, share capital and reserves.

Next steps

We can help you to ensure any dividends declared are legal. Please get in touch to discuss how.


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