Payment of dividends to non-Director Shareholder

Payment of dividends to non-Director Shareholder

Didn't find your answer?

I have a new company for which I am currently preparing the first set of annual accounts.

The company was set up with 2 Directors, with equal shareholdings. of 1 ordinary share each. Subsequently, 1 of the Directors resigned, but retained his shareholding. The shareholders are not related in any way.

I have come to issuing Dividends for the year, throughout which they have drawn amounts equally and fairly frequently. My question is: what is the correct procedure for issuing these dividends in the accounts?

Currently the dividends taken have been posted 50:50 to individual Directors Current Accounts, from which I would normally issue the dividends to zero the balance, but how can I have a DCA for the non-Director? The amounts/dividends he has paid throughout the year are going to have to go somewhere, so where?

Any guidance (in relative lay-mans terms, as I'm fairly new to all this) would be greatly appreciated.

 

Replies (6)

Please login or register to join the discussion.

By Tim Vane
26th May 2016 11:31

You say you are preparing the accounts, but are asking for explanations in laymans terms...does the company have an accountant? If not, I suggest you get one, since this question is a rather basic one. If the company does already have an accountant then they will be the ones to ask.

Thanks (2)
Man of Kent
By Kent accountant
26th May 2016 12:14

"...they have drawn amounts equally and fairly frequently..."

Surely you mean they have drawn dividends equally and fairly...

So you've answered your own question ;o)

Thanks (1)
By johngroganjga
26th May 2016 13:12

Not sure what your question is? Do you mean that the shareholders have drawn loans in anticipation of future dividends. And do you mean that the anticipated dividends have now been voted and you are now reflecting them in accounts you are preparing. If so I am with you so far. Where you lose me is when you say you don't know where to credit the dividends to.

Thanks (0)
paddle steamer
By DJKL
26th May 2016 14:23

You do not have a director's loan account for the non director you merely have a loan account.

I take it that the former director still has an involvement with the company ? Does he do any work for the company?

Or is the continuing director happy to do all the work but re dividends (salaries not mentioned) be rewarded the same as the passive 50% shareholder?

Whilst not impossible for such a scenario I think I would be finding out from the director the intention of the shareholders/remaining director before fiddling with postings to their respective loan accounts.

Thanks (1)
Replying to DJKL:
avatar
By VickyH2016
26th May 2016 14:56

Perfect! That's what I was looking for!

The former director does indeed still have involvement with the company. They run it as co-directors really, it's just that one had to resign for personal financial reasons.

Thank you for your help.

Thanks (0)
Replying to VickyH2016:
By Tim Vane
26th May 2016 15:20

VickyH2016 wrote:

Perfect! That's what I was looking for!

The former director does indeed still have involvement with the company. They run it as co-directors really, it's just that one had to resign for personal financial reasons.

Then it sounds like you have slightly bigger problems than a bookkeeping issue. Consider your position with respect to this client and advise both shareholders of their legal responsibilities with regards to directorships. If the non-director is acting as a de-facto director you should very probably disengage, especially if the non-director is barred from holding a directorship. You need to protect yourself as if things were to go wrong, any future creditors could decide you are an easier target than a dissolved company.

Thanks (0)