What is a Dividend?

Accountants always assume business owners know what a dividend is but not everyone does. So let’s discuss it today. A dividend is when there’s surplus profits in a company. A dividend is a way and means of paying that surplus profits out of the company, into the hands of the shareholders. The shareholders are the owners of the business.

Now dividends can be paid in two ways. They are franked dividends, when the company’s already prepaid tax on those dividends and therefore the shareholder gets a benefit of that prepaid tax in their tax return. An unfranked dividend is when the company hasn’t prepaid the tax or hasn’t paid tax and therefore that dividend goes into the return of the shareholder that they don’t get a tax credit like they do for a franked dividend.