Latest News

August 2011

When to be careful taking dividends

It is very common for the shareholder / directors of SME limited companies to take dividends as part of their remuneration strategy. Normally this makes complete sense. However when it can rebound on them is when their company is going through a difficult time and the reserves are very low or even negative, effectively insolvent.

it is well known that you can only draw dividends when the company has retained profit. This situation can change quickly though when a company starts making losses. If the company goes into liquidation and the liquidator discovers that illegal dividends were drawn he will claim them back from the shareholder. If instead the shareholder / director had been drawing salary, the net salary generally cannot be reclaimed even if the company was insolvent at the time