Harper James is a UK full-service commercial law firm advising businesses on the laws of England and Wales. For directors and finance teams, dividend approval is a governance exercise as well as a cash distribution decision. The process must establish that the company has sufficient distributable profits, identify the correct approval route and leave a clear record.
Review the company’s relevant accounts before proposing any dividend. Distributable profits are accumulated, realised profits less accumulated, realised losses. The latest annual accounts are often sufficient, but interim accounts are required where the company’s position has changed or the proposed distribution cannot be supported by the annual figures. The board should also check the articles of association, shareholder agreement, share rights and any financing restrictions.
The review should reconcile the proposed amount to the cap table and confirm which shares carry dividend rights. A useful board paper records the profit calculation, cash position, proposed amount, class of shares, payment date and any tax or accounting actions. Further dividend governance resources can support a wider company secretarial process.
An interim dividend is generally declared by the directors under the company’s articles. A final dividend is recommended by the directors and declared by the shareholders, usually at a general meeting or by written resolution. Shareholders cannot declare a final dividend above the amount recommended by the board. The resolution, board minutes and payment records should match the type of dividend being declared.
The board should record its consideration of the company’s financial position, including debts falling due, working capital and any restrictions in loan documents. Directors must exercise their statutory duties and apply the company’s constitution. A dividend paid without sufficient distributable profits is an unlawful distribution. The company may seek repayment from a shareholder who knew, or had reasonable grounds to believe, that the payment was unlawful, and directors face additional risks where they approved an improper payment.
A practical workflow is: prepare the accounts and dividend schedule, review the articles and shareholder arrangements, circulate a board paper, approve the resolution, obtain shareholder approval where required, issue dividend vouchers, update the accounting records and make payment. Retain the supporting accounts, minutes, resolutions and payment evidence with the company’s statutory records.
For recurring dividends, set an approval calendar rather than treating each payment as an informal finance decision. A company secretarial review can check that the right approvals are used, share rights are applied consistently and records remain ready for an audit, investment round or due diligence exercise. Payment should follow approval, not replace it.