Dividends from retained profits after loan
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    Default Dividends from retained profits after loan

    Hello

    Can anyone check if dividends can be taken please as per below please :-

    1. Jan, LTD Co year starts, accounts show 10,000 retained profits.
    2. March Director's loan (startup funding), pays for services worth 30,000
    3. Apr, 5,000 of sales made.
    4. Nov, can 10,000 dividends be declared/taken?

    Not sure if (3) is relevant, makes any difference..

    Secondary question: Can any business which takes a startup loan never declare dividends until they are in profit?

    tips appreciated! rich

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    How about asking your accountant? They will k ow the exact details of your situation and be able to give you proper advice.
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    Quote Originally Posted by northernladuk View Post
    How about asking your accountant? They will k ow the exact details of your situation and be able to give you proper advice.
    Yes, i thought about that, I like to be informed before I enter a discussion. This is why I join forums of esteemed knowledge

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    That's a theoretical situation yes?
    Last edited by northernladuk; 14th November 2017 at 23:45.
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    Just two comments - is your startup loan supposed to be used to enrich your personal income? How did you get a startup loan if you've already traded enough to have retained profits from a previous year?

    The 10k is retained profit so yes it can be divvied, but this doesn't sound like awfully good financial management to my simple mind. But hey, it's your company, make up your own mind.
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    Quote Originally Posted by malvolio View Post
    Just two comments - is your startup loan supposed to be used to enrich your personal income? How did you get a startup loan if you've already traded enough to have retained profits from a previous year?

    The 10k is retained profit so yes it can be divvied, but this doesn't sound like awfully good financial management to my simple mind. But hey, it's your company, make up your own mind.
    Thank you for your reply.

    Startup loan is just my personal money. Paid out via dividends since 2014.
    This money is used by the company to buy services (effectively digital product inventory).

    The key potential problem is that dividends can only be declared when the company has retained profits. If the profits are considered to have already been spent on services, then there are no dividends that can be declared right?

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    I think the bit that perhaps wasn't obvious is that not only did you put 30k director loan into the company (no impact on retained profit), your company then spent that on valid business expenditure (which I'm assuming can't be capitalised). Therefore ignoring the impact of any taxes, it suggests your retained profit (before any dividends) is actually a retained loss of 15k now. 10k retained profit brought forward, less 30k expenditure, plus 5k sales.

    If that's the case, then no, you can't declare any dividends until the retained profit is positive (and sufficiently positive to cover whatever dividend you want).

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    Default Dividends

    Would agree with @Maslins, just to add that if the dividend was declared and paid around the January time then would be ok, but as waited until after incurring significant expenditure resulting in no retained earnings being available, then no.
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    Many thanks @Maslins and Darren.

    Ok, yes I'll wait until back in profit.

    So any company which takes any kind of directors loan cash, or even a loan from a bank, cannot declare any dividends until after first profitable year?
    I guess they just do PAYE until that point.

    Although, I don't understand how stock market companies (which presumably have large debt) can declare dividends -- perhaps those are a different category of share.

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    Quote Originally Posted by richy View Post
    So any company which takes any kind of directors loan cash, or even a loan from a bank, cannot declare any dividends until after first profitable year?
    The director (or bank) loan is basically irrelevant, it's the income vs expenditure that's key (a loan isn't income...no EBT comments plz!).
    Quote Originally Posted by richy View Post
    Although, I don't understand how stock market companies (which presumably have large debt) can declare dividends -- perhaps those are a different category of share.
    You can have debts and pay dividends, as long as you have assets in excess of the debts. Inevitably each listed company will be different to the next, so can't really lump them all in one basket.

    You may be interested to read the BHS/Philip Green stuff with this in mind. Some would argue he did some clever/dodgy accounting, understating debts, to make it look like there was profits. He then declared a big dividend, and later on...oops, actually the company was in a much worse state than we thought.

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