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ICAEW introduction to the law on dividends

1 June 2020: the law on dividend payments by companies has become a subject of some public interest. ICAEW welcomes this and has published a short introduction to the law.

This document provides an overview of the various laws that directors need to consider in determining whether they can lawfully, or ought to, pay a dividend. It explains that they are not limited to laws based on the balance of realised profits in the latest set of accounts.

It also explains the role and content of TECH 02/17BL guidance on realised and distributable profits issued by ICAEW and the Institute of Chartered Accountants of Scotland (173 pages), which is used to determine which accounts profits are realised and which are unrealised (not distributable).

In all this it aims not only to make the broad outline of the law, but also the general principles on realisation described in the guidance, more readily accessible to the general reader.

The Introduction does not cover circumstances arising from COVID-19. ICAEW’s earlier article on paying dividends during the COVID crisis highlights some particular considerations in this context, in particular drawing attention to some of the restrictions and considerations that are not based on the balance of realised profits in the latest set of accounts but that are especially relevant at this time.