Sarah Bradford explains how profits can be extracted from a family company as dividends.
Where a business is operated as a family or personal company, the directors or shareholders will need to extract the profits if they wish to use them personally outside the company.
In the first part of this article, I looked at the tax implication of extracting profits by paying a salary and the level at which that salary should be set. In this part, I look at the tax implications of taking dividends.
Nature of a dividend
A dividend is a distribution of post-tax profits made to eligible shareholders. A dividend can only be paid if the company has sufficient retained profits from which to pay the dividend. Dividends paid in excess of the company’s retained profits are illegal dividends.
Where there is more than one shareholder for a class of shares,
