Dividend policy is determined by many factors, which can be both subjective and objective, both formal and informal.
Legislative restrictions
The founders' capital of the company, which is reflected in the balance sheet in the passive part, can be considered as shareholder's capital, as issue income / reinvested profit.
In countries with a market economy, a common restriction is that it allows either only profit for the reporting period and its previously undistributed amounts to be used for dividend payments, or these amounts together with the issue income.
This restriction is aimed usages of car owner database at ensuring the interests of investors and eliminating the possibility of unjustified and risky spending of capital by the owner. Another tool for this is the conclusion of contracts, in particular, when receiving a loan. They establish a threshold, below which the amount of profit not used to pay dividends cannot be, or determine the minimum share of the profit that the owner is obliged to spend on reinvestment.
Legislative restrictions
Limitations due to low liquidity
Payment of dividends is the transfer of funds to shareholders' accounts. It is clear that for such transfers the enterprise must have an amount in the account that allows them to be made in full according to the register. Financial equivalents that can be converted into money can also be used.
However, this requirement is not always met. In the absence of available funds, a loan can be taken, but this increases the financial burden on the company. Thus, the organization may have sufficient profit, but be unable to pay dividends due to lack of funds.
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Constraints caused by increased production
Often, enterprises have difficulties in finding financial resources that allow them to increase production volumes. This applies to both companies that show high growth rates and need to increase business capacity, and firms whose growth is moderate, but the main production assets require modernization.
This is reflected in the formation of dividend policy by limiting the amounts that can be used to pay shareholders. Moreover, the company's charter may specify an obligation to reinvest a share of profit that is not less than a certain value.
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