Explain The Rules Governing The Distribution Of Dividends 2 / 2

Private Companies

These can issue dividends out of accumulated realised profits

Public Companies

These can issue dividends out of accumulated realised profits less accumulated Unrealised losses

So, a private company may only pay dividends out of its retained earnings as a dividend

A public company must further deduct things like negative revaluation reserves.

Unlawful Distributions

  • If directors authorised knowingly an unlawful dividend they will be liable personally.

  • If a shareholder knew it was an unlawful dividend - they are liable to pay it back

  • If the company's auditors advised the unlawful dividend policy - they are liable for professional negligence.

We use cookies to help make our website better. We'll assume you're OK with this if you continue. You can change your Cookie Settings any time.

Cookie SettingsAccept