What is dividend
A dividend represents a portion of a company’s earnings distributed to its shareholders, provided the company is profitable and has surplus equity available. The distribution of dividends is proportionate to shareholding and is determined by resolutions passed at the company’s general meeting.
Annually, shareholders convene at the general meeting to ratify the financial statements and resolve whether dividends should be disbursed. Each shareholder receives a dividend in line with the number of shares they possess, ensuring an equitable division amongst all owners.
Entities ranging from individuals to other corporate bodies are eligible to hold shares and subsequently receive dividends. However, in scenarios where a parent company or subsidiary maintains over 90% ownership in the distributing firm, a group contribution could be utilised as an alternative financial approach, effectively exempt from taxation.
Types of Dividends
Dividends are categorised into three predominant types:
Ordinary Dividends: As part of the fiscal review, the general meeting may confer a portion of the company’s profit to be allocated for dividend distribution. Following their proposal in the annual accounts, these sums are reserved in the financial records pending the general meeting’s endorsement and the eventual dispersal.
Additional Dividend: These dividends are derived from the profits of preceding years that remain undistributed.
Extraordinary Dividends: In instances where the company has realised profits within the current financial year and elects to distribute dividends ahead of the subsequent year’s general meeting.
Taxation on Dividends
Profits that are earmarked for dividends are subject to the standard corporate tax rate of 25-30%. Shareholders themselves are also liable for personal taxation on any dividends received.