Am I Entitled to a Dividend or Share of Profits?

As a starting point, a dividend is a distribution of profit. There must therefore be a profit in the company for a dividend to be possible. In smaller private companies it is frequent to see a Directors’ loan account used to reflect regular payments received by the Director/Shareholder ‘on account’ of anticipated profits.

In addition to there being a profit, however, companies also require cash for cashflow purposes to be able to continue trading. That there is a profit and cash available to be distributed as a dividend does not automatically create a right to a distribution of company monies in that way.

Typically, a dividend policy will be considered within a Shareholders agreement, and this should be reviewed. Otherwise, this issue should be covered within minutes of resolutions relating to the company, and financial matters and should be put to a properly constituted vote. 

Shareholders should not however be treated unfairly from one another. If one Shareholder has received monies from a company via dividend, other Shareholders will be entitled to a distribution of profits pro-rata to their shares. In simple terms, two 50% Shareholders will typically be entitled to receiving an identical dividend. 

If Shareholders are not being treated equally, and if/where monies are being removed from a company without that process having been agreed, that conduct can amount to unfair prejudice.