The law on distributions applies not only to dividends, but to any form of distribution to shareholders. Put simply, a distribution is any transaction that transfers value to a shareholder, or any other related party, because they are a shareholder. This includes gifts and other transactions at undervalue.

Typically drawings by owners (school fees, holidays, non-business personal expenses) are charged to their personal loan accounts with the company and then, to redress their overdrawn position, a dividend is declared to repay the sums due before the company’s accounts are finalised.

Why are dividends different?