A dividend is a distribution of retained earnings to the shareholders of the company based on the amount and type of shares (eg common/ordinary) that they hold. It is usually paid in cash. There is no legal obligation for a company to pay dividends. Most companies especially listed company is mandatory required to have a formal policy on the manner and the amounts of dividends to be paid yearly. 

All dividend payment would need to be first recommended by the Board of directors (Board). Interim dividend only needs to be recommended and approved by the Board (provided the Company Constitution specifically vests the power with the directors) with simple majority (>50%). The model ACRA Constitution (s104) which is the standard Constitution usually adopted by most companies gives the directors the power from time to time to pay to the members such interim dividends as appear to the directors to be justified by the profits of the company. Final dividend (or commonly refers to as dividend) will further requires the approval of shareholders in an AGM.

The Co Act s403(1) (as well as s105 model constitution) specifically only allows dividend payment out of profits and the onus of ensuring this rests on the Board (every director and CEO, Co Act s403(2)). Any dividend distribution with insufficient available profits will be deemed an unlawful distribution and the directors may be held personally liable on conviction to a fine not exceeding $5,000 or to imprisonment for a term not exceeding 12 months as well as held liable to the creditors of the company for the amount of the debts due by the company to them respectively to the extent by which the dividends so paid have exceeded the profits. When preparing the necessary board minutes of the discussion to declare the dividend, it is important that the Board document its review of relevant interim or final financial statements and the basis of approving or proposing the dividend payment.

Final dividend approved in an AGM post financial year end cannot be recognised as a liability in the tabled annual financial statements as it is not a legal liability until it is approved by the shareholders in an AGM (FRS 10 para 12 & 13). Dividends declared after the reporting period but before the financial statements are authorised for issue, the dividends are not recognised as a liability at the end of the reporting period because no obligation exists at that time. Such dividends are disclosed in the notes in accordance with FRS 1 Presentation of Financial Statements. The proposed final dividend for a company with financial year end 31 December 2019 usually requires to be included as a shareholders’ resolution for approval in an AGM (AGM needs to be held within 6 months from financial year end ie 30 June 2020) and cannot be taken to the books as a liability (dividend payable) or a charge to equity (as it cannot be paid until shareholders’ approval) as there is no legal liability to pay.

Interim dividend (upon which the Board can decides on the payment without further shareholders’ approval) on the other hand can be recognised as a charge to retained earnings in the annual report when it is declared, approved and paid before the financial year end.