2 min read
Definition
Distributable reserves are the accumulated realised profits a company has, after tax and previous distributions, that it is legally allowed to pay out as dividends to shareholders.
In plain terms
You cannot pay a dividend just because there is cash in the bank — you can only pay from profits the company has actually made and kept. Distributable reserves are the running total of those profits available to distribute.
Why it matters for your company
Paying a dividend that exceeds distributable reserves is unlawful and can be clawed back or reclassified. Directors must check reserves before declaring a dividend. It is also why draining reserves can leave a solvent-looking company unable to pay out.
Related reading
Dividends vs salary: how directors take money out
As a director-shareholder you can pay yourself a salary, take dividends, or mix the two — and the choice…
Read →
Company Reserves, Retained Earnings and Dividends: A Director's Primer
Retained earnings accumulate every year the company makes a profit and are the source from which dividends…
Read →
Director's loan account
A director's loan account records money moving between a director and the company that is not salary,…
Read →
Distributable reserves
Distributable reserves are the accumulated realised profits a company is legally allowed to pay out as…
Read →Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.