New joint-stock and limited liability company regulations related to interim dividends came into force on the 1st of March 2012. Interim dividend is a dividend which is declared and distributed before the company's annual earnings have been calculated. Before these new regulations, decision to distribute the dividends had to be made by the general meeting only after the end of the financial year, so it was allowed to distribute didvidend only once a year. From now on, an interim dividend distribution became legitimate in Lithuania. Special rules and conditions of these new regulations are going to be described in this essay.
In Lithuania‘s Company law interim dividend is not described as a dividend distributed in advance, it is forbbiden to distribute dividend for the period that has not started, because companies can not evaluate their future profit precisely. In other words, companies are allowed to distribute dividend for the financial year that has not finished yet. The shareholders that have at least 1/3 of all votes (articles of the company might determine a bigger amount) can initiate the distribution of interim dividend. The required amount is different compared to the number of shareholder votes who can initiate the general meeting or change the agenda of the meeting. It is important to mention that board of directors or supervisory board of the company does not have a right to involve the question of interim dividends to the agenda of the general meeting, it is the exclusive competence of the shareholders.
To complete the distribution of interim dividends procedure, following steps have to be done:
- The company has to prepare an intermediate financial statement for the period that is shorter than financial year, an intermediate announcement and the draft decision of the general meeting. These three documents has to be prepared by the executive director of the company just after the company gets a written initiave from the shareholders. The general meeting must be arranged in 3 months after the end of the period interim dividend is distributed for;
- Company must be profitable in that period;
- Company must be able to fulfil its financial obligations after the distribution of interim dividend;
- The intermediate financial statement of the company has to be approved by the shareholders;
- The decision to contribute interim dividend is approved if 2/3 of votes from the shareholders that are taking part in the general meeting accept the draft decision on the interim dividend. Different procedures might be provided in the articles of particular company;
- Company must distribute dividends in 30 days period after the decision was approved. Company must inform Lithuanian Registrar of legal persons about the decision;
- Another important condition is that company can not distribute interim dividend if it has debts that are due;
- The company that is distributing interim dividend must withold taxes. If a legal person gets dividend from other company, the tax rate is 15%, if the shareholder is natural person the rate is 20% from the income of the dividend.
The company that wants to distribute interim dividend does not have to change its articles, because the right to distribute them is ensured by the law. It can not be decided to distribute interim dividends earlier than 3 months after the last procedure of distribution. These new regulations are not applicable to banks, other credit institutions and insurance companies. The drawback of this new regulation is that shareholders do not have an immediate duty to pay back dividend (or percentage of a dividend) if the profit of the company at the end of the financial year is not as big as it was presumed on interim dividend distribution day.
owever, new rugulations that provide an opportunity to distribute interim dividend allows shareholders to dispose and invest company assets easier, this might also increase domestic consuming and foreign investments.
Assistant to the Attorney at Law
ECOVIS Miškinis, Kvainauskas ir partneriai advokatų kontora
Mesiniu str. 5/2, LT-01133 Vilnius, Lithuania