Florida corporation dividends are declared by the board of directors, and only when the corporation passes the state’s solvency test. After the payment, the corporation has to be able to pay its debts as they come due, and its assets have to exceed its liabilities. Shareholders can’t force a dividend, but once the board declares one, it’s a debt the corporation owes them.
What kinds of dividends can a Florida corporation pay?
Cash dividends are the usual kind: a set dollar amount per share, paid by check or electronic transfer. If the board declares $2 per share and you own 100 shares, you get $200.
Stock dividends pay in additional shares instead of cash. A 10% stock dividend on 100 shares gives you 10 more. The corporation rewards shareholders and keeps its cash for operations or growth.
Property dividends distribute other assets, such as equipment or securities of other companies. They’re uncommon and mostly show up in restructurings or liquidations.
Who decides whether to pay Florida corporation dividends?
The board of directors, exclusively. Shareholders can’t make the board declare a dividend, even when the company is very profitable. That decision is part of the board’s fiduciary duty to manage the corporation’s finances in the interest of the company and all shareholders.
The board reviews the company’s profits, cash reserves, upcoming capital needs and outstanding obligations, then decides whether a dividend makes sense. If it does, the board passes a resolution. A good resolution includes:
- A statement that the board reviewed the corporation’s financial condition
- A finding that the dividend meets Florida’s solvency requirements
- The amount per share, or the formula
- The type of dividend: cash, stock or property
- The record date and the payment date
- Authority for officers to do what’s needed to make the payment
Adopt it at a board meeting, or by written consent if your bylaws allow, and keep it with the minutes. If anyone later questions the dividend, that resolution is your evidence the board checked before it paid.
What does Florida law require before a dividend?
Under Florida Statutes Section 607.06401, a corporation can’t pay a dividend if, after paying it, either of these would be true:
- The corporation couldn’t pay its debts as they come due in the ordinary course of business.
- Its total assets would be less than its total liabilities plus whatever it would need to pay shareholders with superior preferential rights.
The board is responsible for making that call. Directors who authorize a dividend that fails the test may be personally liable for it. That’s reason enough to run the numbers with your accountant before every declaration, not just the first one.
Two other limits matter. Loan agreements, credit facilities and bond indentures often restrict dividends to protect the lender, so read your financing documents first. And if you’ve issued preferred stock with a dividend preference, the preferred holders get paid before common shareholders.
What are the record date and payment date?
The record date decides who gets the dividend. Whoever owns shares on that date receives it, even if they sell before the payment date. Set March 15 as the record date and only shareholders on the books that day are paid.
The payment date is when the money actually goes out, usually a few weeks later to allow time for processing. A payment date of April 15 in that example gives the corporation 30 days.
Publicly traded companies also have an ex-dividend date, which decides whether someone who buys the stock gets the declared dividend. For a closely held Florida corporation it hardly matters, since shares change hands rarely and transfers often need board approval.
How are dividends taxed?
It depends on how the corporation is taxed: as a C corporation or an S corporation.
C corporations
C corporation dividends are taxed twice. The corporation pays federal income tax on its profits (currently 21% for most income), and shareholders pay personal income tax on the dividends they receive from what’s left.
Qualified dividends, which meet holding period and other requirements, are generally taxed federally at 0%, 15% or 20%, depending on the shareholder’s income. Non-qualified dividends are taxed at the shareholder’s ordinary rate.
Florida has no personal income tax, so Florida shareholders pay federal tax on dividends but nothing to the state. That’s a real saving compared with shareholders in high-tax states like California or New York.
C corporations have to send Form 1099-DIV to each shareholder who received $10 or more in dividends during the year, and keep records of every dividend paid.
S corporations
S corporations are pass-through entities and generally don’t pay corporate-level tax. Their income flows through to the shareholders’ personal returns, and shareholders pay tax on their share of the income whether or not they receive a distribution.
S corporation distributions aren’t really “dividends” in the traditional sense. They’re generally tax-free up to the shareholder’s basis in their stock. And since Florida has no personal income tax, the pass-through income is only taxed federally.
What rights do shareholders have?
Fewer than many expect.
No automatic right to dividends. Common shareholders can’t demand one. A profitable corporation can keep its earnings, and the board’s dividend decisions are generally protected as long as it acts in good faith and in the corporation’s best interest.
Preferred shareholders may have priority. If the articles of incorporation or the terms of the preferred stock give them a dividend preference, they’re paid before common shareholders.
A declared dividend is owed. Once declared, the dividend is a debt to shareholders of record, and the corporation can’t revoke it on its own. If it doesn’t pay, shareholders can sue to collect, the same as any other creditor. Declare only what you’re sure you can pay.
Some protection for minority owners. Minority shareholders can’t force dividends, but Florida law gives them remedies if the majority uses dividend policy oppressively to hurt them. Courts can step in for fraud or oppression.
Inspection rights. Shareholders can review corporate records, with proper notice, to understand the company’s finances and the basis for the board’s dividend decisions.
Should you pay dividends or keep the money in the business?
Keeping earnings lets the corporation fund expansion, equipment or new products without outside financing (so nobody’s ownership gets diluted and there’s no debt to service), build a cash cushion for downturns, pay down debt, and be ready for an acquisition or investment opportunity.
Paying dividends rewards shareholders for their risk, signals financial strength, and gives owners liquidity. That matters in a closely held corporation, where shareholders can’t easily sell and some may depend on the income.
The right balance depends on a few things:
- Stage. Early companies usually keep everything to fund growth. Mature companies with steady cash flow often pay regular dividends.
- Who the owners are. Owner-operators may prefer salary and benefits. Passive investors usually want dividend income.
- Industry norms. Some industries traditionally pay dividends, and others prioritize reinvestment.
- Taxes. The timing and structure of distributions can be planned to reduce the overall tax bill.
- Predictability. A regular policy gives shareholders income they can count on.
In a closely held C corporation where the owners work in the business, we’d talk to your accountant about salary versus dividends before declaring anything.
Frequently asked questions
How often can a Florida corporation pay dividends?
As often as the board wants: annually, quarterly, monthly or on any schedule. Each payment has to pass the solvency test when it’s made. Many closely held corporations pay once a year after the year-end numbers are final.
Can a corporation with past losses pay dividends?
Yes, if it passes the solvency test now. Florida doesn’t require positive retained earnings. Most corporations still prefer to rebuild their balance sheet first.
Do all shareholders get the same dividend?
Within a class, yes. If the board declares $5 per share on common stock, every common shareholder gets $5 per share regardless of when they bought or their relationship to management. Different classes can receive different amounts if their rights differ.
Can a dividend go to just one shareholder?
Not as a dividend. Dividends are paid pro rata to everyone in the class. A corporation can pay a shareholder a salary for work, rent as a landlord, or interest as a lender, but those are different payments with different tax treatment. Disguising one as another causes tax and legal problems.
How are dividends different from shareholder loans?
A dividend is a board-authorized distribution of profits paid proportionately to all shareholders. A shareholder loan is the corporation borrowing from a shareholder, with an obligation to repay with interest. They have different legal requirements, tax results and accounting.
Does paying dividends affect borrowing?
It can. Large dividends that drain cash or weaken the balance sheet may worry lenders and affect your loan terms, and many loan agreements restrict dividends outright.
Before your first dividend, pull three things together: the latest balance sheet, any loan agreements, and a draft board resolution with the solvency finding written in. If the numbers work and the lender’s covenants allow it, the paperwork is straightforward. Working with qualified legal and tax advisors helps you stay compliant with Florida law and get the best tax treatment for the corporation and its shareholders.