Company law · When something changes

Paying a dividend

Companies Act 2006 Part 23 · No Companies House filing

A dividend is a distribution to the members, and it is governed by Part 23 of the Companies Act 2006. A company may only pay a dividend out of profits available for the purpose. Paying a dividend when there are no profits available makes it an unlawful distribution, which the company can be required to recover. There is no Companies House filing for a dividend, so the discipline is entirely in the approval and the records.

The directors approve an interim dividend, and the members approve a final dividend, and in each case the company keeps records that show the distribution was lawful. Those records are the accounts that justified the profit, the board or members' decision, and the dividend voucher for each shareholder. This is a common point of exposure, because a company that pays out on a hunch about its profit can create a liability it did not expect.

The Distributions and Dividends working file in the ComplianceSME Companies Act 2006 system takes you through the test for available profits and the approval route for the dividend. It records the profit figure relied on, the approval and the voucher for each member. It asks you what profit supports the payment and how it was approved, one question at a time, then produces the evidence that the distribution was lawful under Part 23.

Everything beyond the Companies Act 2006 has its own system in the full register.