Dividend checklist

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When you want to pay a dividend, there are a number of considerations to take into account to ensure it is valid. Our checklist will help you to establish that your dividends are up to scratch.

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Dividends

Dividends are amounts paid to shareholders out of the accumulated profits of a company. Generally speaking, these will be paid out in direct proportion to the number of shares held in the same class - so a shareholder who has 200 shares would receive twice as much as one who has 100 shares. There can be differences due to shareholders waiving their right to dividends. The dividend is therefore a return on capital, i.e. it is a type of investment income and not earnings for tax purposes.

There are a number of things that need to be considered in practical terms when paying dividends, so we have put these together in a checklist.

Using the checklist

Refer to the checklist ahead of deciding on dividend levels, and ensure you follow each step. Provided you do this there should be no issues with your dividends being queried. You will also have all the paperwork to hand with the correct accounting entries in place.