Advance payment of dividends due
In the case of commercial companies, dividends are a form of remuneration to shareholders for capital provided. However, before the full dividend is paid, an advance payment of the dividend is often made. It is worth learning about the most important practical aspects related to the payment of an advance on the dividend due and its adjustment after the approval of the financial statements, write Lesław Mazur of Thedy & Partners and Michał Parafiniuk of Thedy & Partners Finance in Rzeczpospolita.
An advance dividend is a portion of the profit generated by a company that is paid to shareholders before the approval of the financial statements for the financial year. It is a form of early dividend payment to provide shareholders with a portion of the profits even before the final distribution.
Permissibility of an advance payment
The payment of dividend advances is permissible under the provisions of the Code of Commercial Partnerships and Companies.
The Code provides for the possibility to pay an advance dividend in the event that the company’s approved financial statements for the previous financial year show a profit. The advance payment may be no more than half of the profit made from the end of the previous financial year, increased by reserve capitals created from profit, which may be used by the board of directors to make advance payments, reduced by uncovered losses and treasury shares, as well as by amounts which, according to the law or the articles of association, should be allocated from the profit for the last financial year to reserve capitals or reserves.
Where, in a given financial year, an advance on expected dividends has been paid to shareholders and the company has nevertheless recorded a loss or made a profit in an amount less than the advances paid, shareholders shall return the advances in:
1) in full, if a loss is recorded, or
2) the part corresponding to the amount exceeding the profit attributable to the shareholder(s) for the given financial year – in the event of achieving a profit in an amount lower than the advances paid towards the expected dividend.
NOTES! Advance dividend payments may be made more than once a year subject to the above rules as to the amount of the payment.
The entire article can be read in Rzeczpospolita of 11 October 2023, p. H2