How to declare a dividend correctly

Step 1 — confirm there's distributable profit

Before anything else, check the company has enough distributable reserves — accumulated realised profit after tax — to cover the dividend. Use up-to-date figures, not last year's filed accounts. A dividend beyond available reserves is an unlawful distribution that may have to be repaid. See company reserves.

Step 2 — hold and minute a board meeting

Directors formally decide to pay the dividend at a board meeting (even a meeting of one), and the decision is recorded in the minutes. This isn't a formality to skip — the minute is your evidence that the dividend was properly declared on a given date against confirmed reserves. Keep it with your company records.

Step 3 — issue a dividend voucher

For each dividend, produce a voucher showing the company name, the date, the shareholder, the number of shares and the amount paid. Give a copy to each shareholder and keep one on file. It's the record that supports both the company's accounts and each shareholder's personal tax return.

Step 4 — pay in proportion to shareholdings

Dividends on a class of shares must be paid in proportion to holdings — you can't simply pay one shareholder and not another of the same class. If owners want different amounts, that's a structuring question (share classes), not something to fudge at payment time. See ordinary shares.

Step 5 — account for the personal tax

Remember the dividend is taxable income for each shareholder at dividend rates, reported on their self-assessment. Plan for it rather than being surprised. For the salary-versus-dividend trade-off, see salary vs dividends. If you're drawing more than reserves allow, fund the business properly instead — Credicorp lends with no personal guarantee.