21 Feb Dividends

Dividends

Dividends are distributions of a portion of a C Corporation‘s profits, as determined by the Board of Directors, to a class of its Shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (a dividend per share). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield. Dividends are the primary channel for a shareholder to earn income from their investment in a company (the secondary channel is selling the stock at a later date for more than the purchase price). Most publicly traded companies issue quarterly dividends to their shareholders, based on the company’s fiscal calendar, but dividends may also be issued on an annual, biennial, monthly, or even one-time basis. A dividend is taxed at a lower rate than ordinary income as long as it meets the definition of a qualified dividend. Essentially, in order to qualify for a lower tax rate on a dividend, you have to have held the stock for a long enough period of time before the dividend is issued. A startup’s founders and investors can structure how they distribute the company’s profits in a number of different ways based on tax considerations, rates of return, reinvestment in the company, and terms of offers, and it’s always a good idea to discuss these options with your company’s attorney and accountant.