Paying dividends in first year

[kate_r]

Hi

Could a limited company pay it's (sole) director dividends on its first year of operation or first profit making year? I've heard that dividends can only be paid out if the company has distributable reserves, which are typically retained profits brought forward from the preceding year. If that is correct, does it mean that a company cannot pay dividends on its first profit making year?

Thanks

 

[john1989]

It can pay dividends as long as there are sufficient retained earnings.

If you want to pay a dividend, you should draw up some management accounts to show the retained earnings available.

 

[kate_r]

It can pay dividends as long as there are sufficient retained earnings.

If you want to pay a dividend, you should draw up some management accounts to show the retained earnings available.

By retained earnings, do you mean earnings retained from the previous year or earnings retained after tax for the current period?

 

[john1989]

Retained earnings brought forward, and those in the period.
Example
£10,000 brought forward.
Loss of £2000 in the period.
£8000 available

 

[David Griffiths]

If you've made losses in past years then the profits in the current year must exceed those losses before there is anything available for distribution.

 

[FD Analytical Accountants]

I agree and great point John, regarding management accounts production (ideally monthly) to support any interim dividend payments, sadly this isn't done often enough and at year end the directors suddenly have issues with profitability & directors loan accounts!