Dividends

Our directors are paid through a combination of dividends and a salary. Can dividends still be paid if the business is in financial difficulty?

There are strict rules governing the circumstances in which a company may pay a dividend to its shareholders. Companies must have sufficient profits to pay the dividend at the time it is paid, so you must be confident that you are currently in profit and that these profits are equal to or greater than the amount of the payment. You should also ensure that provisions for Corporation Tax have been considered.

I wish to cancel dividend payments that have previously been agreed, to help with cashflow, am I able to do this?

Whether a board can do this with ease will depend on the type of dividend agreed upon. An interim dividend is decided on and announced by directors, which only becomes a binding obligation to shareholders of a company once it is paid.

A final dividend is one which is recommended by directors to shareholders that is approved by shareholders via an ordinary resolution and which is binding at the point of approval.

This latter classification of dividend may be more difficult to cancel and could be more likely to lead to action through the courts or other legal disputes, which is something businesses should be aware of. It is best to discuss the cancellation of dividends with those affected and to explain the needs of the business.