Discussion:C-Corp Dividend Computation
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Discussion Forum Index --> Accounting Questions --> C-Corp Dividend Computation
| 7 July 2008 | |
| C-Corporation, Form 1120. Would like imput on computing dividends to be paid by corporation to stockholder. Form 1120, 2007 Return shows R/E of $200,000.00. 2007 Profit $100,000.00. Common Stock 5000 Shares valued at $1.00. Would like to pay dividend, but needd guidance on computing amouunt. Other information: never paid dividends before. Once you pay them every year if there is a profit? | |
| 8 July 2008 | |
| Last question first. The board of directors each year decide on the payment of dividends. The amounts are entirely discretionary and there is no requirement to declare dividends at all, even if declared in previous years.
What you do want to have is a methodology. I typically will have dividends declared based upon retained E&P of the corporation. If I'm being conservative, I'll pick 2-4% of RE. If I'm aggressive, I'll pick 8-10%. The par value of the stock and the number of shares has nothing to do with the total amount of dividends to be paid. Remember, E&P is not the same thing as retained earnings per tax. It is common for companies to have reduced RE per tax (usually as the result of accelerated depreciation). There are other factors to be considered such as investment income of the corporation, reasonable compensation, etc. I'm sure someone else here can lead you a discussion of this subject. | |
