Your main goal of opening a company in the UK should be to make profits, and depending on your corporate goals you may choose different ways to extract your financial earnings. One way is to distribute your profits to shareholders, also referred to as paying out dividends.
That said, why should you consider issuing dividends, and how should you go about doing so?
What Is a Dividend?
Imagine you have a group of friends who helped you with a project for a client, be it preparing slides, doing research, collating material and more. Once the project has been approved, you get a sum of money for the work done. Dividends follow the same theory. Here, the money received from the project refers to your company’s profits for the year and your friends are your shareholders.
In order to thank your friends for the help given, you can choose to distribute a percentage of your earnings to them depending on how much they contributed. Alternatively, you may choose to treat them to a nice meal. In this case, the money paid out to your friends is cash, and a meal can be considered additional stock. Dividends can be paid out as either cash or additional stock.
Simply put, dividends are payments paid by private companies for the shareholders and/or directors or investors for buying the company’s shares or stocks.