Hi all,
I am unsure if it Is ok for my Limited company client to take a dividend higher than what is in the shareholder funds? the cash was available in the bank and it is still in credit.
Any help will be gratefully received.
Thanks
Replies (4)
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Regardless of how much cash is in the bank, it is unlawful to take more in dividends than is available in retained profits (not just shareholders funds).
Creditors
You may have more cash than profit because you haven't paid people you owe - including the taxman.
Impossible to say why you've got cash but no profits from the information you have given. It could be one of a number of reasons.
You might be interested in reading this article....
Dividends Checklist -Get the Details Right
https://www.accountingweb.co.uk/topic/tax/dividends-checklist-get-detail...
The section you are looking for is the first one headed "The dividend must be legal'
Any dividend paid in excess of this profit, or out of capital or when losses are made is ‘ultra vires’ and, in effect, ‘illegal’.The financial status of the company therefore needs to be considered each time a payment is made.
Are the reserves you state as being too small based on current management accounts or the latest statutory accounts, which will show a historic position. If the directors can show that the Current position is higher than the dividends then it is OK. As for the cash situation I agree with comments already made re creditors