In Singapore, a company can make dividend payments only if it is making a profit. Dividend payments are recommended by directors of a company and will be voted on and approved by shareholders at the company’s Annual General Meeting (AGM). Once these dividend payments receive the required number of votes and are approved, they are called final dividends. Once this final dividend is declared, the company owes the shareholders this payout in the form of debt. This debt is to be paid immediately unless otherwise states. Some companies may state that dividends be paid at a later date. The dividend payment cannot be withdrawn or altered.
A few things to take note as a director when determining whether dividends can be paid to shareholders.
- Profits are profits of that particular singular company. It cannot be consolidated profits of a group.
- The company does not have to have the full amount of paid-up capital in its bank account before dividends can be paid.
- Profits from the sale of capital assets can constitute as capital gain.
- Profits do not include capital depreciation.
- Past year profits can be used to pay current year dividends. Dividends do not need to be paid out from profits of that particular year’s profits.
- Profits need to be present on the date of declaration. They do not need to be present for the whole financial period.
- There is no necessity to declare dividends. Shareholders have no right to compel a company to declare dividends.
- A company’s constitution can be altered to determine what constitutes as profits and can be paid out as dividends.
- Dividends are subject to corporate tax. However, dividends received by the shareholders are not taxed.
It is important to note that if there are no profits, there should be no dividend payments. It is a criminal offence for a director to permit the payment of dividends if there are no profits available. The errant director will also face possible civil liabilities especially to the company’s creditors for the debts owed to them which could have been paid using the monies that were paid out as dividends. By paying dividends when there were no profits, the director has breached his fiduciary duty and may be made liable to replace the monies that were paid out. The shareholders who receive the wrongfully paid dividends will not incur any criminal liability but they may be liable to refund the dividends paid to them.
If you are unsure whether your company is qualified to pay dividends, you can contact an experienced ACRA Filing Agent or seek legal advice.
The editorial team at Singapore Secretary Services
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