A dividend is a distribution to some or all shareholders of some portion of a company’s earnings—usually from its net profits. The profits retained by the company (and not paid as dividends) are known as retained earnings.
A company’s board of directors may decide to pay a dividend to one or more classes of shareholders, or to all shareholders. Dividends may be paid as cash or as additional stock. And dividends may be paid at a scheduled frequency or as a special dividend on a nonrecurring basis.
In Texas, as in other states, the payment of dividends by a company is governed by state corporate law as well as the company's own articles of incorporation and bylaws. Under the Texas Business Organizations Code (BOC), a corporation may declare and pay dividends on its shares subject to any restrictions in its certificate of formation and provided that the payment of dividends does not render the corporation insolvent. Dividends can be paid out of the corporation's surplus (the excess of net assets over stated capital) or, if there is no surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. The board of directors has the discretion to determine the amount and frequency of dividend distributions, whether in cash or in the form of additional stock. Special dividends may also be declared and are typically one-time distributions based on specific company events or financial results. It is important for corporations to comply with these regulations to maintain their good standing and to avoid legal disputes with shareholders.
