Are you taking too much out of your company?

As a company, there are limits to what dividends can be paid out to shareholders. It may well be that you are the owner manager of the business, and why shouldn’t you take what you want?

The reason is that under Company Law, dividends can only be paid out of ‘distributable profits’. This is the total accumulated profit the company has made, and you’ll find the figure in the balance sheet in the capital and reserves section. If you take dividends over this balance, they are treated as illegal dividends, and the company and possibly the directors could face penalties under the Companies Act.

So before you pay yourself that dividend, check you have the reserves to do so.

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