Is your Singapore startup making a killing? Here’re some tips on dividends

Kirti Ayush is a Chartered Secretary with Futurebooks, an accounting and company incorporation firm. It helps entrepreneurs achieve big ambitions.

So, your upstart company made a profit. You can now decide whether to re-invest the money or distribute it between the company’s shareholders, you, and the other co-founders.

Before you decide, take a look at this brief overview of what dividends are all about. We give important pointers for Singapore startup owners on when and how to pay dividends.

What is a dividend?

Once a company starts making a profit, the portion remaining after taking off taxes can be distributed to the shareholders. The amount eligible to be distributed to the shareholders is usually referred to as a “dividend”. 

When to pay dividends?

It is the directors’ responsibility to see that the company is running smoothly and generating sufficient profits. Here are some important pointers for directors before they can declare dividends to the investors:

Before declaring a dividend:

• Does the company have sufficient profits? The company should have set off the previous year’s losses and tax obligations and have a ‘net profit’ before the dividend amount is recommended.
• Does profit have to be only ‘revenue profit’? No, the balance of the capital profit/retained earnings (previous year’s profits) after setting off losses for the current year (if any) can be considered when declaring the dividend.
• Will declaration and payment of the dividends affect the liquidity of the company? Instead of declaring and paying dividends, using the surplus funds for the growth of business activity of the company may be more viable.
• Obtain the consent of the shareholders so the dividends may be declared.

After declaring a dividend:

• When the decision to declare the dividend has been made, ensure that:
  – The company pays the dividend to the shareholder;
  – Issue the dividend warrants to each of the shareholders for the dividend amount paid.
• Remember to reflect the dividends declared and paid in your Singapore accounting books.

These few pointers can help directors decide if it is in the best business interest of the company and its investors whether or not to declare any dividends.

How much should dividends be?