As a shareholder in a company, it is important to protect your investment and ensure that you receive a fair return on your investment. One way to do this is by including a dividend clause in the shareholders agreement.
A dividend clause is a provision that outlines the procedure for the payment of dividends to shareholders. It specifies the frequency and the amount of dividends that will be paid. Dividends are the distribution of profits from a company to its shareholders.
The dividend clause is an important part of the shareholders agreement because it helps to ensure that shareholders are fairly compensated for their investment. It also helps to prevent disputes among shareholders regarding the payment of dividends.
When drafting a dividend clause, it is important to consider the following:
1. Frequency of dividends: The dividend clause should specify the frequency of dividend payments. For example, dividends may be paid quarterly or annually.
2. Amount of dividends: The clause should also specify the amount of dividends that will be paid. This may be a fixed amount or a percentage of the company’s profits.
3. Conditions for payment: The dividend clause should also specify the conditions for payment of dividends. For example, dividends may only be paid if the company’s profits exceed a certain threshold.
4. Priority of dividends: The clause should also specify the priority of dividend payments. For example, dividends may be paid to preferred shareholders before common shareholders.
5. Dividend reinvestment: The clause may also include a provision for dividend reinvestment. This allows shareholders to reinvest their dividends back into the company, which can help to increase their investment.
It is important to ensure that the dividend clause is drafted clearly and unambiguously. This will help to prevent disputes among shareholders regarding the payment of dividends.
In conclusion, the inclusion of a dividend clause in the shareholders agreement is an important way to ensure that shareholders are fairly compensated for their investment. The clause should specify the frequency and amount of dividends, as well as the conditions for payment and priority of dividend payments. By including a dividend clause, shareholders can protect their investment and help to prevent disputes among shareholders.