A dividend is a distribution of a company’s post-tax profits made to its shareholders. It is the most common way of returning cash to shareholders. In order to give dividends to shareholders, a company must have profits available to make the distribution (distributable profits) and the distribution must be justified by reference to the most recent relevant accounts.
Dividends can be final or interim. The procedure for declaring a dividend is set out in a company’s articles of association but will usually involve just a board resolution for a private company. Shareholders can waive their right to a dividend and SME companies will sometimes choose to do this in order to retain money in the business.
Following a decision to pay a dividend, shareholders must be sent a dividend/tax voucher.