Only limited companies pay dividends, and these are based on the shares that have been issued to the shareholders. Sole traders, partnerships and LLPs do not pay dividends, because they do not issue shares.
Limited companies can pay dividends if they have enough “profit” available to do so and this “profit” needs to allow for any corporation tax due and payable. It is illegal for a dividend to be paid if there are insufficient retained profit in the company. A dividend can be paid if there is a loss in an accounting period though, as long as there are sufficient retained profits from prior years to cover it.
It is essential to dot the “i”s and cross the “t”s when voting dividends so a board minute should be prepared each time as well as a dividend voucher showing the amounts voted. It is not necessary to pay the dividend in cash – it could be credited to a directors’ loan account.
Be aware also that if there are say 4 shareholders each holding 1 Ordinary Share, all will be entitled to the same amount of dividend, unless a dividend waiver is put in place.
