Dividends are payments to shareholders from a limited company that have been agreed in advance and taken from the cumulative reserves.
Dividends can only be paid out of profits in a previous year or current year - there must be an accumulated profit however.
Shareholders receive dividends in respect of their shareholding within the company.
Dividends are usually paid by cash from the company account.
Within a small company, care is needed to ensure dividends are calculated after taking into account any taxes that are due e.g. corporation tax. If too many dividends are taken by the shareholders , tax and interest may become payable until repayment occurs.
See our dividend guide for further details.