Instructions on how to dividend distribution of joint stock companies

Dividend distribution of joint stock companies is the process of distributing profits to shareholders. The joint stock company determines the dividend level, ex-dividend date and dividend distribution method. Shareholders receive dividends in cash or shares, depending on company policy. This process complies with legal regulations on personal income tax and securities for listed public companies. Dividend distribution affects stock prices and investment strategies. The following article will guide you in detail the steps for distributing dividends for joint stock companies.

What are dividends in joint stock companies?

According to the provisions of Clause 5, Article 4 of the Law on Enterprises 2020, dividends are net profits paid for each share in cash or other assets. Dividends are only distributed when the company is profitable and has fulfilled its tax and other financial obligations as prescribed by law.

Dividends are determined based on the shareholder’s capital contribution ratio to the company. The specific dividend level is proposed by the Board of Directors and approved by the General Meeting of Shareholders. The dividend rate is usually calculated on the par value of the stock. For example, a 10% dividend means that for every 10,000 VND in face value, shareholders will receive 1,000 VND in dividends. The payment of dividends must ensure the principles of fairness, transparency and protect the legal rights of shareholders.

Legal basis: Clause 5, Article 4; Article 135 of the Law on Enterprises 2020.

Common forms of dividend distribution of joint stock companies

Common forms of dividends for joint stock companies include dividends in cash, stocks and other assets specified in the company charter. Each form has its own advantages and limitations, suitable for each company’s business strategy, specifically:

• Cash dividends are the most common form. The company will pay a fixed amount for each share. This form brings cash flow directly to shareholders, often favored by individual investors. However, paying in cash can affect the company’s cash flow and ability to reinvest.
• Stock dividends are a form of company issuing additional shares to distribute to existing shareholders. Shareholders will receive additional shares corresponding to their ownership ratio. This form helps the company retain capital for reinvestment, while increasing the number of shares circulating on the market. However, the market value of the shares may be diluted.
• Paying dividends with assets is a less common form. Companies can pay dividends with goods, real estate or shares of other companies. This form is often applied when the company wants to restructure its investment portfolio or liquidate assets. However, asset valuation and distribution can be difficult in practice.

In addition, there is also a form of combined dividends, for example both in cash and in shares. The company needs to consider carefully to choose the appropriate form of dividend payment, ensuring a balance between the interests of shareholders and the development needs of the business.

Legal basis: Clause 3, Article 135 of the Law on Enterprises 2020.

How to dividend distribution of joint stock companies

The process of dividend distribution of joint stock companies starts with the Board of Directors proposing a dividend plan based on the company’s business results and development strategy. The division process is carried out according to the following steps:

1. The first step is to determine the source of the dividend. According to the Law on Enterprises, companies can only pay dividends to shareholders when their business is profitable and has fulfilled tax obligations and other financial obligations according to the provisions of law. The company must appropriate funds according to regulations before paying dividends. The source of dividends is undistributed after-tax profits and other sources as prescribed by law.
2. Next, the company determines the dividend rate and payment method. The dividend rate must be approved by the General Meeting of Shareholders, ensuring compliance with the business results and financial capacity of the company. The form of payment can be cash, stocks or other assets. The company needs to disclose information about dividend distribution according to regulations, including the closing date for the list of shareholders, payment date and payment method.
3. After completing the procedures, the company proceeds to pay dividends to shareholders. For cash dividends, the company transfers money directly to the shareholder’s account or pays through a payment agent. For stock dividends, the company carries out procedures to issue additional shares and distribute them to shareholders. Companies need to pay attention to complying with personal income tax regulations for dividends paid to shareholders.

Legal basis: Article 135 of the Law on Enterprises 2020.

Note when paying dividends from joint stock companies

Dividends are profits distributed to shareholders in a joint stock company. This is the amount of money or assets that the company pays to shareholders based on the number of shares they own. A joint stock company only has the right to pay dividends to shareholders if the company meets its financial and tax obligations according to law. However, when paying dividends, companies need to keep in mind the following points:

Form of dividend payment for joint stock companies

When choosing a form of dividend payment, a joint stock company needs to consider many factors. Cash payments bring direct benefits to shareholders but can affect the company’s cash flow. Paying in shares helps the company retain capital but can dilute the value of the shares.

When paying dividends in shares, the company needs to follow the correct procedures for increasing charter capital. The company must register to increase charter capital corresponding to the total par value of the shares used to pay dividends. At the same time, the company must adjust its Business Registration Certificate according to regulations.

Profit payment process

The profit payment process needs to comply with the steps prescribed by law. First, the Board of Directors prepares a plan for profit distribution and dividend distribution. This plan must be approved by the General Meeting of Shareholders. The company needs to disclose information about dividend payments according to regulations.

The company must prepare a list of shareholders eligible to receive dividends. The closing date for the list of shareholders must be at least 20 days before the dividend payment date. For shares in custody, the company must notify the Vietnam Securities Depository Center at least 10 days before the listing closing date.

When paying dividends, companies need to pay attention to tax obligations.

For individual shareholders, the company is responsible for deducting personal income tax according to regulations before paying. For shareholders who are organizations, shareholders themselves declare and pay corporate income tax on dividends received. Dividend distribution in a joint stock company is an important process. Enterprises need to pay attention to a number of points as analyzed above when distributing dividends in joint stock companies

Consulting service on dividend distribution at Long Phan

Dividend distribution of joint stock companies is an important process for businesses, requiring accuracy and transparency to ensure fairness and accurately reflect the financial situation of the business. Long Phan will help customers better understand the steps to determine the amount of dividends to be distributed, calculate taxes and the dividend distribution process in joint stock companies. To ensure full compliance with legal regulations.

Long Phan provides consulting services on building dividend policies for joint stock companies. A team of experienced experts will support businesses in establishing dividend policies in accordance with business strategies and legal regulations. Services include analyzing the financial situation, proposing dividend plans and supporting legal procedures.

In addition, Long Phan also supports businesses in developing dividend regulations, drafting resolutions of the General Meeting of Shareholders and related legal documents. We advise on corporate dividend policies in full compliance with the provisions of the Enterprise Law, Securities Law and related legal documents.

We provide detailed advice on tax obligations related to dividend distribution. For cash dividends, Long Phan guides businesses to comply with regulations on personal income tax deduction for individual shareholders. For institutional shareholders, we advise on how to declare and pay corporate income tax on dividends received.

In addition, Long Phan also advises on tax optimization solutions when distributing dividends, such as choosing the appropriate time to pay dividends, combining dividend forms to optimize tax obligations. We also support businesses in planning long-term financial strategies, balancing dividends and reinvestment to optimize tax benefits for both companies and shareholders.

dividend distribution of joint stock companies requires compliance with legal regulations and consideration of many factors. Long Phan provides comprehensive consulting services on dividends, from policy development to tax optimization. If you need legal support in distributing dividends, please contact us immediately via Hotline 090.673.5386 for in-depth advice and the most suitable solution.