Dividends are payments made by a company to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a company earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or paid to the shareholders as a dividend. Many companies retain a portion of their earnings and pay the remainder as a dividend.
Dividends are usually settled on a cash basis, as a payment from the company to the shareholder. They can take other forms such as a dividend reinvestment plans, which automatically use the cash dividend to purchase additional shares in that company for the shareholder.
Share dividends need to be included on your annual tax return. If you’re a small business looking to outsource your payroll, be sure to visit Crawshay Payroll Consultants for accurate and effective solutions.