A dividend policy can also affect the value of the shares. If a buyer of a minority position knows that the value can only be returned in limited circumstances, the price he is willing to pay is probably much lower. The preferred shareholder: the rights related to the shares of complicity are generally defined in the statutes, including the right to receive dividends at a fixed rate payable on certain dates. It is important to compare the cost of dividends to be paid to a preferred shareholder with that of other amounts that are preferred to the company, for example. B a bank loan. For example, in the event of a decline in interest rates, the dividend initially granted on preferred shares may become too high. In this case, a restructuring may be advisable, possibly with the withdrawal or repurchase of your preferred shares. When reporting dividends, you must consider the cash required to support the company`s working capital requirements and can only distribute a dividend on distributed earnings.dem revenue income and realized capital gains. Reserves of un distributed profits from previous years, like any deficit, may be deferred to determine at any time the amount of profits paid.
As a result, the owners, for whom reward control is likely to be a more important topic, are those who are not directors (and therefore cannot influence the board of directors in a vote on the declaration of a dividend and who may not receive a salary) and those who are not majority shareholders (and others cannot sell the entire company). Dividend payment rules are set out in the Corporate Tax Manual. The manual states that dividend payments are illegal if there are not enough profits to cover the amounts paid. As a result, company executives should find that there was enough profit before agreeing on dividends. But a loan from the director is not considered a payment in the same way as a dividend – and taxes may not have to be paid (depending on the cooling-off period). For more information, see Directors Loans. Another strategic consideration is the exit — the sale of the business. Most businesses are purchased directly, so the buyer has total control of the future strategy. Sometimes minority stakes can be purchased by outsiders, but it is less common, and the price will probably be lower than for the same share if the whole business were sold. Drag-along clauses are included in shareholder agreements to compel minority shareholders to sell, while Tag Along clauses allow minorities to benefit from the fact that a seller is found by a majority owner.
Business valuations are generally based on free cash flow, so a majority shareholder who wants to sell the business probably sees the reinvestment of excess profits and the maintenance of directors` salaries as strategic objectives, rather than maximizing dividends. By default, dividends are decided each year by the board of directors based on the profit made. Unless otherwise stated in the statutes or in the association agreement, there is no minimum dividend to be paid.