Dividend Payments Guide for Singapore Business Owners
Have you just started a new business? Are you wondering whether you can pay dividends to your shareholders?
Here is a comprehensive guide to paying dividends, covering all aspects from whether you can pay dividends, to how to go about doing so.
Can You Pay Dividends?
Dividends are only payable out of profits. Hence, you should only declare dividends when you are sure that your company has profits which you can pay dividends from.
What constitutes profits?
- This refers to the profits of the company, and not the profits of any group that the company is a part of.
- It does not matter whether the total assets of the company are less than the original capital contribution of the shareholders. As long as there is a net inflow of income, the paid-up capital (i.e. the capital subscribed by the company’s shareholders) does not have to be maintained in order for dividends to be paid.
- Capital appreciation is part of profits, even if there are no revenue profits. Hence, unless prohibited by the company’s constitution, dividends may be paid out of capital gains realised on the sale of capital assets. However, this only applies when the capital of the company is intact. Thus, only the increase in value of the capital may be used for dividend payment.
- Profits do not include capital depreciation, unless they are being used to offset such losses.
- Profits can include past-year profits that have been carried forward. Hence, dividends need not be paid out from profits earned in the same year. However, if such retained profits have been expended so as to become unavailable for distribution, such as to replace previously lost capital or make up for asset depreciation, dividends cannot be declared from them.
- The company’s constitution might restrict what profits may or may not be paid out as a dividend.
Apart from considering whether you have enough profits to declare dividends, there are also other factors which ought to be noted:
- Shareholders have no unconditional right to receive dividends unless otherwise specified in the constitution. A shareholder cannot compel a company to declare dividends.
- However, the consistent refusal of the majority shareholders to declare dividends when profits are available may amount to unfairness to minority shareholders which justifies relief. This is especially if the majority is being remunerated in some other way.
- Profits need only be available on the date of declaration of dividends, not at the time the dividends are paid.
- Dividends may not be declared after the company has gone into liquidation.
How Do You Declare Dividends?
Now that you have decided you can declare dividends, how should you go about it?
Generally, directors will recommend a particular rate to be paid as dividends, which will be voted on and approved by shareholders in the company’s Annual General Meeting (AGM). Such dividends are referred to as final dividends. If the company has adopted the Model Constitution prescribed under the Companies Act without modification, the amount of dividends declared cannot exceed the amount recommended by the directors.
Nevertheless, directors may pay interim dividends as appears to be justified by the company’s profits. These dividend payments are typically made before a company’s AGM and the release of its final financial statements, and usually accompany the company’s interim financial statements.
What Happens When You Declare Dividends?
Once a final dividend has been validly declared, it is a debt owed by the company to its shareholders. This debt is immediately payable unless the declaration states that the dividend will be payable at a later date. Such a declaration cannot be revoked or cancelled, nor can the dividend be reduced.
Notably, only a final dividend creates a debt. An interim dividend does not create a debt. That said, it may be commercially prudent for companies to honour their interim dividend declarations to keep their shareholders happy.
Moreover, dividends are not an expense for tax purposes. Singapore adopts a one-tier taxation system, whereby dividends are not subject to tax from the receiver’s perspective. The funds from which dividends are paid, namely the company’s profits, have already been subjected to corporate tax. Companies are hence not taxed again when paying dividends.
What Happens If You Paid Dividends When There are No Profits Available?
Consequences for directors
If a dividend is paid when there are no profits available, directors who had permitted such a payment may incur both criminal and civil liabilities.
Every director who wilfully paid or permitted the payment is guilty of a criminal offence under section 403(2) of the Companies Act and shall be liable on conviction to a fine of up to $5,000 or up to 12 months’ jail. The director would also be liable to the company’s creditors for the amount of debts owed to them to the extent that the dividends paid exceeded the available profit.
To be found guilty, the director must have known, at the time that the dividends were declared, of circumstances that show there had been insufficient profits to properly declare dividends.
Consequences for shareholders
Generally, there is no liability for shareholders who have received wrongful payment. However, shareholders who receive dividends knowing that there are no profits which the dividends could have been paid from will likely be liable to refund those dividends.
If you need legal advice on the lawful payment of dividends in Singapore, please consult our experienced corporate lawyers.
- Appointing Company Directors in Singapore: Eligibility, Process etc.
- Managing Director vs CEO in Singapore: Roles and Obligations
- Guide to Directors' Remuneration in Singapore
- Directors' Duties in Singapore
- Shadow Directors: Who are They and What Duties Do They Owe to the Company?
- How to Remove a Director from a Company in Singapore
- Removal and Resignation of Company Auditor in Singapore
- Appointing a Company Secretary: Roles and Responsibilities
- Appointing an Authorised Representative for Foreign Companies in Singapore
- Process Agents in Singapore
- 2 Ways to Remove a Singapore Company Shareholder ASAP
- Guide to Paid-Up Capital in Singapore (Is $1 Enough?)
- Preparing a Register of Shareholders for a Singapore Company
- How to Issue Shares in a Singapore Private Company
- Guide to Transferring Shares in a Singapore Private Company
- Your Guide to Share Certificates in Singapore: Usage and How to Prepare
- Shareholder Rights in Singapore Private Companies
- Shareholder Roles and Obligations in Singapore Companies
- Dividend Payments Guide for Singapore Business Owners
- Share Transmission: What Happens If a Shareholder Dies in Singapore?
- How to Reduce the Share Capital of Your Singapore Company
- Buy-Sell Agreements: How to Write & Fund Them in Singapore
- Oppression of Minority Shareholders
- Essential Regulatory Compliance Guide for Singapore Companies
- Dormant Companies and Their Filing Obligations in Singapore
- Anti-Money Laundering Regulations and Your Business: What You Need to Know
- Price-Fixing, Bid-Rigging and Other Anti-Competitive Practices to Avoid
- Legally Conducting Lucky Draws for Singapore Businesses
- Restaurant Inspection and Food Safety Rules in Singapore
- Does Your Company Need a Legal Team (In-House Counsel)?
- Acqui-Hiring of Singapore Companies: How Does It Work?
- How to Change the Name of Your Singapore Company
- Can Directors be Liable for Company Debts in Singapore?
- Company Loans to Directors/Shareholders in Singapore
- 3 Types of Insurance Every Singapore Business Needs
- Creating and Registering Charges in Singapore: Guide for Companies
- Guide to Effective Business Continuity Planning in Singapore
- Business Asset Sale & Disposal in Singapore: How Do They Work?
- Business Partnership Disputes in Singapore: How to Resolve
- How to Commence a Derivative Action on Behalf of a Company in Singapore
- Business Will: How to Pass on Your Business to Your Successors in Singapore
- Record-Keeping Requirements for Singapore Companies
- Company Constitutions in Singapore and How to Draft One
- Company Memorandum and Articles of Association
- Company Resolutions: What are They?
- Board Resolutions in Singapore
- Minutes of Company Meeting in Singapore: How to Record
- How to Set Up a Register of Controllers
- How to Set Up a Register of Nominee Directors
- Guide to Filing Financial Statements for Singapore Business Owners
- Filing Annual Returns For Your Business
- Singapore Corporate Tax: How to Pay, Tax Rate, Exemptions
- Start-Up Tax Exemption Guide for New Singapore Companies
- GST Registration: Requirements and Procedure in Singapore
- What is Withholding Tax and When to Pay It in Singapore
- Singapore Influencers: Here's How to Calculate Your Income Tax
- Tax Investigation of Tax-Evading Business Owners in Singapore
- Small Business Accounting Services in Singapore
- Company Audits in Singapore: Requirements and Exemptions
- Suspect a PDPA Data Breach? Here's What to Do Next
- Must You Notify PDPC About a Data Breach in Your Business?
- Summary: Your Organisation's 10 Main PDPA Obligations
- Essential PDPA Compliance Guide for Singapore Businesses
- PDPA Consent Requirements: How Can Your Business Comply?
- Is It Legal for Businesses to Ask for Your NRIC in Singapore?
- Here's a 7-Step Plan for Companies to Prevent Unauthorised Disclosure When Processing and Sending Personal Data
- Cloud Storage of Personal Data: Your Business’ Data Protection Obligations
- GDPR Compliance in Singapore: Is it Required and How to Comply
- Appointing a Data Protection Officer For Your Business: All You Need to Know
- How Can Companies Dispose of Documents Containing Personal Data?
- Check the Do-Not-Call Registry Before Marketing to Singapore Phone Numbers
- How to Legally Install CCTVs for Home/Business Use in Singapore
- Is Web Scraping or Crawling Legal in Singapore?
- Legal Options If Employees Breach Confidentiality in Singapore
- Your Guide to E-commerce Website Terms of Service in Singapore
- Dealing with Defamation of Your Business: Can You Sue?
- Sending Email Newsletters That Comply With Singapore Law
- A legal guide to drafting a social media policy for your company
- Your Guide to a Media Release Form in Singapore
- Your Guide to an Influencer Marketing Agreement in Singapore
- Outdoor Advertising: How to Legally Display Public Ads in Singapore
- Should You Save or Close Your Zombie Company in Singapore?
- Voluntary Suspension of Business in Singapore: How to Handle
- Winding Up a Singapore Company: Grounds and Procedure
- Closing Your Singapore Business: What You Need to Settle
- Striking Off a Company
- Can a Company that Struck Itself Off the Register Later Apply to Restore Itself?
- Dissolution of partnerships in Singapore
- What Should a Creditor Do When a Company Becomes Insolvent?
- How to File a Proof of Debt Against a Company in Liquidation
- Validation of Payments Made by Companies Being Wound Up