Our Founder Gemma, meet’s with new Limited Company Directors on a regular basis to provide financial advice and support in those crucial early days of setting up an exciting new venture! Common questions we are asked are ‘what are dividends’ and ‘are we eligible to take dividends’
What are Dividends?
Dividends are a distribution of company profits to its Shareholders. To pay dividends the company need to have sufficient retained earnings.
What are Retained Earnings?
Retained earnings are the accumulated earnings by a company since it was formed (registered with Companies House). It’s common for many start-ups to make a loss when the company first begins therefore, there are no profits to distribute for dividends. The retained earnings are considered ‘negative’ in loss making businesses.
When are the Retained Earnings ‘Positive’?
Once the Limited Company begins to make a profit (after corporation tax) the retained earnings will start to rise until a profit is generated. These funds after tax will be available for Dividend payments to the Shareholders, based on your companies Shareholding and Shareholders agreement of how they are to be distributed.
Do Investment funds count towards Retained Earnings?
No, investments funds are the purchase of company shares. This is equity into the business and not earnings of that business from trading activities. Investment funds will show on the Balance Sheet rather than the Profit and Loss Statement.
Require Assistance?
Advisory Gems Limited work with start-ups and small businesses to provide a range of financial and operational services. You can find more information via our Services Page.
If you would like a free non-obligation phone call of your specific requirements, please contact us to arrange a time. Look forward to connecting with you!