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As a startup founder, how should I pay out funds to my shareholders?


How shall I determine the right dividend policy? What payout ratio should I consider?
What piece of advise can you give me?


Opened by Anonymous , Dec 12, 2012.




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Scott McReynolds, CPA Principal, Scott McReynolds, CPA
Dec 13, 2012

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It's unusual for a startup to pay out dividends to investors and for any growth company in general. You'll need the capital to invest in growing the business. Most investors these days would rather have the lower tax rate on capital gains selling the stock than receiving dividend income.

The biggest obstacle is you'll need to have some accumulated earnings. Any payment to shareholders that exceeds your current and accumulated earnings is generally a non-taxable return of capital. Not necessarily a bad thing but as a startup the capital was recently raised so not sure why you want to return it so soon.

If you have a company that has steady earnings and not a lot of opportunity for growth then dividends make sense. Consistent distribution of dividends can make a company's stock attractive and increase it's value to investors looking for regular income.

My advice would be to not worry about dividends unless you have investors in your startup that have that expectation. If you do start paying dividends you'll want to make sure that any amount you pay is sustainable. Investors want to see a consistent amount each quarter and cutting dividends usually ends up lowering the market price of the stock unless there's a very good reason.
Any other questions just let me know.
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Catherine Nohra-China Analyst IT, Virtualization INSIDE
Dec 13, 2012


First of all, do you retain the majority of the capital or are the investors (shareholders) holding the majority? I think this is an important point to consider ...
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Antoine Fournier 67 Antoine Fournier Head of ECM, Input and Output management, Zurich Insurance

Dec 13, 2012
@Catherine, could you specify what would be the 2 approaches ?
  1. What if the founder holds the majority?
  2. What if not?
Do you agree with Scott that the main point is to NOT spend incomes in dividends at an early stage of growth (startup) ?

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Catherine Nohra-China Analyst IT, Virtualization INSIDE
Dec 18, 2012


If the founder is not holding the majority, he cannot control strategic operations, specifically when things are going wrong. I agree with Scott to say that you should'nt' have to pay dividends in the early stage of growth.
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