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Distributions - Coggle Diagram
Distributions
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Payment of a dividend
The process for paying a dividend is a matter for the company's articles, with many companies adopting the following 3 stage process
- the directors recommend an amount to be distributed
- in the case of a final dividend, the company will declare that a dividend be paid by the members passing an ordinary resolution
- the dividend is paid based on the rights of the members
The standard method being to send each member a dividend warrant, which is essentially a cheque authorising the company's bank to pay the members ban the dividend amount
The articles may provide for another method of payment - the model articles allow members to write to the company requesting their dividend be paid directly to their bank account
Companies with a large number of members tend to send their members a dividend mandate from to complete which instructs the company to pay the dividend into a bank account of the members choosing
Dividends generally must be paid in cash unless the company's articles provide for some other form of payment
Model articles provide that a company must pay all or part of aidivdend by transferring non-cash assets of equivalent value to its members, this could allow a company to pay a scrip dividend
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What is a distribution?
CA2006 defines as 'every description of distribution of a company's assets to its members whether in cash or otherwise'
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Dividends
Final dividend
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The articles usually provide that the members declare a final dividend by passing an ordinary resolution
Interim dividend
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A company's articles usually provide that the directors can pay out an interim dividend without obtaining member approval
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In small private companies, the directors and members are often the same people and so a combination of dividends and remuneration will be used in order to provide the most tax efficient way of distributing the company's profits
In larger public companies, the members will expect profits to be distributed by way of dividend payment with larger companies paying a quarterly or half yearly interim dividend followed by a final dividend
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