A reasonable time period for paying a dividend is 1 week to prepare documents, obtain accounts, and collect signatures.
Funds can usually be transferred on a same day basis once documentation is executed.
No, there are no timing restrictions on paying dividends.
In the UK, dividends are either: (i) shareholder declared, and therefore unconditional and irrevocable and can be accounted for on the date of the shareholder resolution (referred to as "final dividends") (which can be declared at any time of year and as many times a year as the Company wishes); or (ii) paid with the authority of a resolution of the board of directors, which are revocable until the point of actual payment - these are referred to as "interim dividends".
The accounts required to support payment of a dividend are:
- The last annual audited (if the Company is required by the Companies Act 2006 to prepare audited accounts) accounts that were circulated to the shareholders. It is advisable for the Board to have regard to the Company's most recent management accounts (which are not audited) in order to confirm the up-to-date financial position of the Company and, in particular, to confirm that that position has not deteriorated since the date of those last annual accounts; or
- If those last annual accounts do not show sufficient distributable profits to cover the amount of the proposed dividend or were not "properly prepared" in accordance with the requirements of the Companies Act 2006, "interim accounts" prepared for the purpose will be required (which do not need to be audited but should be prepared on the same basis as the annual financial statements are prepared, i.e., UK GAAP or IFRS compliant).
If the Company is in its first accounting period following incorporation, corresponding requirements for the preparation of "initial accounts" apply.
In all cases, it is the individual company accounts that are used and not, if the Company is a holding company, the consolidated accounts.
Yes. A private company may make distributions only out of profits available for the purpose (i.e., its accumulated realised profits less its accumulated realised losses).
Yes. The typical way to increase distributable profits is for the Company to undertake a reduction of capital, complying with the relevant statutory procedure to do so.
The capital reduction process that is most frequently used by private companies in practice is by way of special resolution (requiring a 75% majority approval) of the shareholders supported by a unanimous solvency statement of the directors, which usually requires the preparation of supporting financial information (such as, e.g., cash forecasts for the coming year). The reduction is not effective until it has been registered at Companies House.
A reasonable time period is 2 weeks to prepare documents, obtain accounts, and collect signatures but, once approved by the shareholders, the capital reduction can be registered at the companies registry on a same day basis (although the COVID-19 pandemic has caused delays in the registration of reductions and the same-day basis is not at present available).
No regulatory approvals are ordinarily required in connection with payment of a dividend unless the Company operates in a regulated industry that imposes requirements.
No, there are no foreign exchange requirements on paying dividends to foreign parent companies.
Yes. If the Company has sufficient distributable profits to cover the amount of a proposed dividend but insufficient cash to settle it, the board may resolve to borrow the cash but, when doing so, must consider the impact of that borrowing on the Company's ability to pay its debts and, more generally, the advisability of incurring debt to fund payments to shareholders.
Yes, dividends in kind are possible, depending on the articles of association of the Company.