How dividends are paid on shares - procedure, features and recommendations

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

A joint-stock company forms the authorized capital from the property of its owners. For this, at the end of the reporting period, they may be awarded remuneration. These are dividends that are accrued in proportion to the shares in the total capital of the organization to the owners. This is a special type of income that significantly affects the market value of the company, its investment attractiveness. How share dividends are paid will be discussed later.

General definition

A joint-stock company forms its authorized capital from the property shares of its creators. To calculate what contribution each founder has made to the organization, shares are issued. These are securities that provide the right to receive profit at the end of the reporting period in case of successful operation of the enterprise.

What are stock dividends and how do I get them? This question is of interest to those who have already purchased such securities or only wish to do so. Dividends are the profit that shareholders receive if the company received profit in the reporting period and did not use it for its own development.

There are two ways to profit from stocks. In the first case, you can buy shares at a lower price and resell them at a higher price when demand for them rises. The second way is to receive dividends. This type of income does not guarantee that each time the owner receives a profit from his shares. However, if this happens, the income can be significant. Therefore, stocks carry a high degree of risk, but the profit from holding them can be high.

Varieties of dividends

How much and how often are dividends paid? It depends on the policy of the enterprise. All decisions are made by the Board of Shareholders. The related documentation shows similar solutions. Dividends can be annual or interim.

In the first case, payments are made at the end of the year. At this time, relevant reports are being prepared. If the company made a profit this year, shareholders can expect to receive a profit.

Interim dividends are paid at the end of a quarter, half a year or after 9 months of the organization's operation. In some cases (depending on the type of shares) the holder of securities can count on a certain amount of profit, regardless of how the enterprise performed this year. However, such shares aremany nuances and limitations. Ordinary shares do not guarantee dividends.

Ways to make a profit

There are two main ways to receive stock dividends. It should be noted that in accordance with the law, the company first pays income tax. After that, a certain part of the money remains at her disposal. This is the net income that the company can dispose of as it sees fit.

The decision is made by the shareholders themselves by voting. However, if one of them has 50%+1 share, his decision is decisive. If there is no such owner, then the weight of the vote of each security owner is determined by the number of shares that he owns. After voting, the amount of profit is determined, which will be used to pay dividends.

The profit of receiving dividends is determined by the type of shares. If these are preferred shares, they pay dividends in any case, regardless of the profit received. But such actions do not allow to take part in the voting, to decide the fate of the enterprise. This is possible only if there are ordinary shares. Dividends are not paid on them every time they receive net profit. The amount of payment on preferred shares cannot be less than on ordinary shares, in accordance with the law.

When is the decision made?

Wishing to purchase securities, you need to consider how dividends are paid and for which shares. The decision on such accruals is made at the meeting of shareholders. The company's management prepares a preliminary report on the results of the enterprise's work for the reporting period. Further, it becomes clear in which direction you need to act in order for the organization to flourish.

Perhaps, it is more expedient to direct the received profit to the development of the enterprise. In this case, next year it will be possible to significantly increase net profit and receive higher dividends.

At the meeting of shareholders, a decision may be made on a smaller amount of dividend payments than was previously indicated when drawing up the dividend policy. They can even “freeze” all payments. In some cases, payments may be made from funds accumulated in previous reporting periods. Therefore, what the decision will be this time depends entirely on the outcome of the vote.

Payout form

The legal nature and procedure for paying dividends is determined by the type of securities. However, in what form the profit will be received is not indicated in such a document. Therefore, you should pay attention to the possible forms of payments:

• Transfer of non-cash funds from the company's account to the shareholder in proportion to their share in the authorized capital. Transfers can also be made to the broker's account.
• Cash withdrawal at the cash desk of the organization.
• In kind. Most often, in this case, the shareholder receives new securities additionally issued by the company. It can also be shares of a subsidiary. In practice, such actions are called reinvestment. Company likeconducts additional capitalization of his company.

No dividends accrue

There is a legally established procedure for paying dividends to founders. In some cases, the organization does not have the right to proceed with the distribution of profits. It is impossible to accrue dividends under such conditions.

Such a situation arises if, on the initiative of shareholders or founders, issued shares are bought back. Also, profit is not distributed if the amount of the company's net assets in the reporting period has decreased, passing the allowable rate.

For an LLC, this is true if not all participants have fulfilled their obligations, have not contributed the appropriate amount of property to the authorized capital. Another situation where dividends cannot be paid occurs when bankruptcy proceedings are initiated.

If in these situations the company still distributes profits, shareholders can sue. Such a decision must be challenged.

Dividend rules

While reviewing the complete guide on how to receive dividends from stocks, it is worth noting a few rules for conducting this process. First of all, they must belong to the owners. In other words, the securities must be paid. Dividends are not paid on the following categories of securities:

• which were not issued;
• redeemed, which is explained by the demand of the meetingshareholders;
• on the balance sheet of the organization, which confirms the decision of the board members;
• returned to the company's balance due to non-payment by their buyer.

Therefore, dividends can only be accrued on paid securities held by their owners. Shareholders' funds took part in the main activities of the company, so they brought income. Owners are en titled to receive dividends in case of distribution of net profit.

Assertion algorithm

Each organization must take into account the established rules, and the documentation of dividends is also carried out in accordance with legal regulations. To approve payments, the company takes several consecutive steps:

• The register of meeting participants (regular or extraordinary) is closing. In order to be able to vote on the council, it will be necessary to buy the relevant securities before that time. Also, before the registry closes, you must submit an application to participate in the work of the council.
• The meeting itself is taking place. Here, the results of the enterprise's work in the reporting period are presented to the attention of shareholders. All key points related to dividends are announced at this stage. The meeting lasts for one business day.
• The next stage is called "cut-off". To receive payments, the shareholder must pay for the securities he purchases in advance. On his account, they should be on the account on the day the register is closed. It should be noted that the shares are credited to the account only 2 days after payment.deals.

After these processes, dividends are paid. It must not take place later than 30 days after the registry closes.

Nuance

Knowing how dividends are paid on shares, one nuance can be noted. The shareholder on the date of payment of remuneration may no longer have securities in his hands. As soon as the “cut-off” is completed, he can sell the shares. Quotes usually fall immediately after payments. Moreover, the cost falls by an amount equal to the payments. Therefore, it is more expedient to hold securities until they reach the optimal value.

Number of dividends

The amount of dividends on shares and their payment and calculation depend on the policy of the organization. In different countries and industries, this level differs markedly. Most often, at least 30% of net profit is used to pay dividends.

It is worth noting that public corporations are required by law to allocate for these purposes at least 50% of the profit received in the reporting period after taxes.

After that, the enterprise has a certain part of unallocated funds. They are used to improve the financial condition of the organization. Such funds can be used to purchase new equipment, buildings, tools and technologies.

Dividend LLC

It is worth noting that not only joint-stock companies, but also LLCs have the right to pay dividends. In this case, the distributed profit after tax, which corresponds to the shareplot in the authorized capital.

So, we pay dividends to LLC participants. There are several features in this case. For the founders, payments can be made disproportionately to their share in the capital of the company. However, in this case, such income cannot be considered dividends. They are taxed differently.

In an LLC, the law does not establish such a concept as net profit. Therefore, the accounting information is the basis for the calculation. This is retained earnings or, in other words, it is income from all types of activities of the company after deducting fines, taxes, and other obligatory payments.

Enumerations

When considering how dividends are paid on shares in an LLC, one should consider the procedure for transferring funds. At the meeting of the founders of the company, a report on financial results for the past period is presented. The amount of retained earnings is indicated here.

Further, the participants of the meeting decide how much of this income will go to investment in production, and how much will be paid in the form of dividends. The decision is taken by majority vote and recorded in the form of a protocol. An order is issued to transfer dividends. On the day the funds are debited, the accountant simultaneously withholds the tax.

At this meeting, the issue of including new persons among the founders can be decided. If the decision of the participants is unanimous, it will be possible not to amend the Charter. In this case, a corporate agreement is concluded.

Dividend tax

Considering,how dividends on shares are paid, it is worth noting that this income item is taxed. It is charged each time a payout occurs. Legal entities and individuals who are residents of our country are required to pay a tax of 13%. If dividends were assigned to a foreign person, then in this case the amount increases to 15%.

This rate applies to both annual and interim dividends. The special tax regime applies only if the shareholder owns more than 50% of the securities.

The task of deducting tax on dividends rests with the company's accountants. In other words, if a shareholder is supposed to receive 100 rubles per share, he can actually expect to receive an amount of 87 rubles. The tax withheld by the accounting department is transferred to the budget no later than the next day after the date of payment of dividends.