Firstly, what is the dividend?

A dividend is a distribution of profits by a company to its shareholder in proportion to the number of shares they hold.

According to section 132, a company may only declare a dividend/make distribution to the shareholder;

• Existing profit of the company (profit after tax);
• If the company is solvent (i.e. has the ability to pay debts falling due within 12 months of distribution)

Dividends can be distributed in a form of;

• Cash dividend
• Share dividend (bonus issue)
• Set-off against the amount owing
• Dividend in specie (transfer asset)
• Dividend Reinvestment Plan

Powers to declare dividends

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Type of dividends

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How to calculate dividends?

Formula: No. of shares held (Unit) x Dividend rate (RM/share)

Example : No.of shares held = 500 unit, Dividend rate (RM) = RM 1.00
500unit x RM 1.00 = RM500

Hence, the total dividend to be received by the shareholders is RM500.

The advantages of paying dividends to shareholders

• Reward shareholders for their loyalty
• Dividends provide certainty about the company’s financial well-being
• Attracts more investors and creates demand for their shares
• Paying dividends sends a clear, powerful message about the company’s prospects, performance and indirectly demonstrates financial strength.

When dividends cannot be paid?

• If, after a distribution is authorised and before it is made, the directors cease to be satisfied on reasonable grounds that the company will be solvent immediately after the distribution is made, the directors shall take all necessary steps to prevent the distribution from being made.
• Without prejudice to any other liability, every director or officer of the company who wilfully pays or permits to be paid or authorises the payment of any improper or unlawful distribution shall, on conviction, be liable to imprisonment for a term not exceeding RM3 MILLION or both.

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