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What are dividends?

A dividend is a distribution of a company’s post tax profits to its shareholders (section 829 Companies Act 2006). The law governing distributions is set out in Part 23 of the Companies Act 2006. It is a method of returning value to shareholders.

A lawful dividend may only be paid if a company has sufficient distributable profits that are justified by reference to the company’s relevant accounts. Therefore, if a company has made a profit (after paying all its business expenses and liabilities), it is free to distribute these funds to its shareholders.

Dividends are usually paid in cash (particularly for SME private companies). Dividends may be final or interim.

All information included in these pages relates to private limited companies only.

For more information, see the related Guidance Note on dividends.

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