The joint-stock company forms the authorized capital from the property of its owners. For this, at the end of the reporting period, they may be charged. These are dividends that are accrued in proportion to the ownership interests in the total capital of the organization to the owners. This is a special type of income that significantly affects the market value of the company, its investment attractiveness. How dividends are paid on shares will be discussed later.
General definition
The joint-stock company forms its authorized capital from the property shares of its creators. To calculate what contribution each founder made to the organization, shares are issued. These are securities that provide the right to receive profit at the end of the reporting period in case of successful operation of the enterprise.
What are dividends on shares and how to get them? This question is of interest to those who have already acquired such securities or are only willing to do so. Dividends are the profit that owners of shares receive if the company received profit in the reporting period and did not direct it to its own development.
You can profit from stocks in two ways. In the first case, you can buy shares at a lower price and resell them more expensive when demand for them grows. The second way is to receive dividends. This type of income does not guarantee that each time the owner makes a profit from his shares. However, if this happens, income can be significant. Therefore, stocks have a high degree of risk, but profits from their ownership can be high.
Varieties of dividends
How much and how often are dividends paid? It depends on company policy. All decisions are made on the board of shareholders. Related documentation displays such solutions. Dividends may be annual or interim.
In the first case, payments are made at the end of the year. At this time, appropriate reporting is being prepared. If this year the company made a profit, shareholders can count on making a profit.
Interim dividends are paid at the end of the quarter, half a year or after 9 months of the organization’s work. In some cases (depending on the type of shares), the holder of securities can count on a certain amount of profit, regardless of how the company worked this year. However, such stocks have many nuances and limitations. Ordinary shares do not guarantee dividends.
Ways to make a profit
There are two main ways to get dividends on shares. It is worth noting that in accordance with the law, the company first pays income tax. After that, a certain part of the money remains at her disposal. This is the net profit that the company may dispose of at its discretion.
The decision is made by the shareholders themselves by voting. However, if one of them has 50% + 1 share, its decision is decisive. If there is no such owner, then the weight of the vote of each holder of securities is determined by the number of shares that he owns. After the vote, the size of the profit is determined, which will be used to pay dividends.
The dividend income is determined by the type of shares. If these are preferred shares, they pay dividends in any case, regardless of the profit received. But such actions do not allow to take part in the vote, to decide the fate of the enterprise. This is only possible with common stocks. Dividends are not paid on them every time you receive a net profit. The amount of payments on preferred shares cannot be less than on ordinary shares, according to the law.
When do they make a decision?
If you want to purchase securities, you need to consider how dividends are paid and on which shares. A decision on such accruals is made at a meeting of shareholders. The company's management prepares a preliminary report on the results of the enterprise for the reporting period. Then it becomes clear in which direction you need to act in order for the organization to flourish.
Perhaps it is more advisable to direct the profit to the development of the enterprise. In this case, next year it will be possible to significantly increase net profit and receive higher dividends.
At a meeting of shareholders, a decision may be made on a lower amount of dividend payment than previously indicated in the preparation of the dividend policy. They can completely freeze all payments. In some cases, payments may be made from funds accumulated in previous reporting periods. Therefore, what the decision will be this time depends entirely on the outcome of the vote.
Form of payment
The legal nature and procedure for paying dividends is determined by the type of securities. However, in what form the profit will be made is not indicated in such a document. Therefore, it is worth paying attention to possible forms of payments:
- The transfer of non-cash funds from the account of the enterprise to the shareholder is proportional to their share in the authorized capital. Transfers can also be made to the broker's account.
- Cash payment at the cash desk of the organization.
- In kind. Most often in this case, the shareholder receives new securities, additionally issued by the company. It may also be shares of a subsidiary. In practice, such actions are called reinvestment. The company likewise conducts additional capitalization of its company.
Dividends do not accrue
There is a legislatively established procedure for paying dividends to founders. In some cases, the organization does not have the right to proceed with the distribution of profits. It is impossible to accrue dividends under such conditions.
A similar situation arises if, at the initiative of shareholders or founders, repurchase of issued shares is carried out. Also, profits are not distributed if the amount of the company's net assets in the reporting period decreased, having crossed the permissible rate.
For an LLC, this is true if not all participants fulfilled their obligations, did not contribute the appropriate amount of property to the authorized capital. Another situation where dividends cannot be paid arises in the event of initiation of bankruptcy proceedings.
If in these situations the company still distributes the profit, shareholders can sue. Such a decision must necessarily be appealed.
Dividend payment rules
Considering the complete guide on how to receive dividends from shares, it is worth noting several rules for conducting this process. First of all, they must belong to the owners. In other words, securities must be paid. Dividends are not paid on the following categories of securities:
- which were not issued;
- redeemed, which is explained by the requirement by the meeting of shareholders;
- listed on the balance sheet of the organization, which confirms the decision of the board members;
- returned to the balance sheet of the company due to non-payment by the buyer.
Therefore, dividends can only be accrued on paid securities held at the hands of their owners. Funds of shareholders took part in the main activities of the company, so they brought income. Owners have the right to receive remuneration in the form of dividends in case of distribution of net profit.
Approval algorithm
Each organization must take into account the established rules, and dividends are also documented in accordance with the law. To approve payments, the company carries out several sequential actions:
- Closes the register of participants in the meeting (regular or extraordinary). To be able to vote on a council, you will need to buy the relevant securities before this time. Also, before closing the registry, you need to apply for participation in the work of the council.
- The assembly itself is taking place. Here, the shareholders are presented with the results of the enterprise in the reporting period. All key points related to dividends are announced at this stage. The meeting lasts for one business day.
- The next step is called “cutoff”. In order to receive payments, the shareholder must pay for the securities he previously purchased. On his account, they should be listed on the account on the day the registry is closed. It is worth noting that the shares are credited to the account only 2 days after the payment of the transaction.
After these processes, dividends are paid. It should not take place later than 30 days after the close of the registry.
Nuance
Knowing how dividends are paid on shares, one nuance can be noted. The shareholder may no longer have securities on hand at the date of payment of interest. As soon as the “cut-off” is completed, he can sell the shares. Quotes usually fall immediately after payments. Moreover, the cost falls by an amount equal to payments. Therefore, it is more advisable to hold securities until such time as they reach the optimum value.
Number of dividends
The size of dividends on shares and their payment and calculation depend on the organization’s policy. In different countries and industries, this level is markedly different. Most often, at least 30% of net profit is used to pay dividends.
It is worth noting that state corporations are legally obliged to allocate for these purposes at least 50% of the profit after tax paid in the reporting period.
After that, the company remains a certain part of the undistributed funds. They are aimed at improving the financial condition of the organization. At the expense of such funds, new equipment, buildings, tools and technology can be acquired.
Dividends LLC
It is worth noting that not only joint-stock companies, but also LLCs, have the right to pay dividends. In this case, the dividends are distributed profit after tax, which corresponds to the share of the plot in the authorized capital.
So, we pay dividends to the participants of LLC. There are several features to this business. For founders, payments can be made disproportionately to their interest in the company’s capital. However, in this case, such income cannot be considered dividends. They are taxed in a different way.
In LLC legislation does not establish such a thing as net profit. Therefore, the basis for the calculation is accounting information. This is retained earnings or, in other words, it is income from all types of activities of the company after deduction of fines, taxes, other obligatory payments.
Transfers
Considering how dividends are paid on shares in the LLC, you should consider the procedure for transferring funds. At the meeting of the founders of the company a report on financial results for the past period is presented. The amount of retained earnings is shown here.
Next, the meeting participants decide which part of this income will be spent on investments in production, and which will be paid in the form of dividends. The decision is adopted by a majority vote and is fixed in the form of a protocol. An order is issued to transfer dividends. On the day the funds are debited, the accountant withholds tax at the same time.
At this meeting, the issue of including new persons among the founders can be resolved. If the decision of the participants is unanimous, it will be possible not to amend the Charter. In this case, a corporate contract is concluded.
Dividend tax
Considering how dividends are paid on shares, it is worth noting that this item of income is taxed. It is charged every time payments occur. Legal entities and individuals who are residents of our country are required to pay a tax of 13%. If dividends were assigned to an alien, then in this case the amount increases to 15%.
This rate is valid for both annual and interim dividends. The special tax regime applies only if the shareholder owns more than 50% of the securities.
The task of deducting tax on dividends is assigned to the accountants of the enterprise. In other words, if a shareholder is supposed to receive 100 rubles per share, he can actually count on receiving the amount of 87 rubles. The tax withheld by the accounting department is transferred to the budget no later than the next day after the day of dividend payment.