How to Pay Dividends to Shareholders

The Board of Directors makes all decisions about dividend payments.
The Board of Directors makes all decisions about dividend payments. (Image: Jupiterimages/ Images)

There are two main ways for investors to invest in your company: through stocks or bonds. They may also invest in both. Bonds represent a form of debt to the company, and investors are paid a certain rate of interest to compensate them for the use of their funds. Stock represents a form of ownership, and investors are compensated through share price appreciation and/or dividends. Dividends are usually quarterly payments made to the owners of stock on the date of record.

Convene the Board of Directors and declare a dividend. The Board of Directors must ratify the dividend payment and set the amount before you can pay it out to shareholders. This date this occurs is known as the date of declaration.

Schedule a date of record. All other transaction dates are based on the date of record -- it triggers all other dates into action. The date of record determines who will receive the dividend.

Notify the National Association of Securities Dealers, Inc., to set the ex-dividend date. This is usually set two business days before the date of record. If the investor buys the stock on or after the ex-dividend date, the seller will receive the dividend.

Announce a payable date. Issue a public relations memo stating what the dividend payment will be, the date of record and the payable date. The payable date is usually set approximately one month after the date of record.

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