Active dividend

economic-dictionary

The active dividend is the portion of the profits or reserves of a company that is distributed among the shareholders. Said distribution must be approved by the general meeting of partners, being a voluntary decision of the institution.

The active dividend is a way of rewarding those who invested in the organization, without returning the capital contributed. Unlike the passive dividend, it represents an obligation of the company and not of its partners. The active dividend represents an outflow of money from the firm. Instead, the passive dividend is an outstanding debt in favor of the company.

It should also be noted that the active dividend to be paid to each person (natural or legal) will depend on the number of shares they own, that is, on their level of participation in the company.

Advantages and disadvantages of the active dividend

Among the advantages of the active dividend are:

  • It raises the value of the company's shares in the face of potential investors who require income in the short term.
  • It can incentivize members to invest more capital in the organization in search of higher dividends.

However, there are also some disadvantages:

  • By spreading all or part of the profits to shareholders, there are fewer funds to reinvest in the company. In other words, the ability to expand or improve the company's activities is reduced.
  • It is an outflow of money that will not generate a return to the organization, at least, directly.

Active dividend conditions

The conditions necessary for the company to register the active dividend are the following:

  • In principle, the company must generate profits, but it is also required to verify the existence of sufficient liquidity for payment to shareholders in an accounting statement. The one that best meets this requirement is the statement of cash flows.
  • Define the maximum amount to be distributed. To do this, you must take the profit obtained from the last fiscal year and separate the capital destined to the legal reserves (or statutes) and to the payment of taxes.

Tags:  USA derivatives finance 

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