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Dividend policy decisions

Profits earned by the organisation belong to the owners of the organisation. In case of the corporate form of organisation, shareholders are the owners and they are entitled to receive the profits in the form of dividend. However, there is no specific law or statue which specifies as to how much amount of profits should be distributed by the way of dividend and how much amount of profits should be retained in the business. The alternatives available to the organisation to distribute the profits in the form of dividend on one hand and retention of profits in the business have reciprocal relationship with each other. If the dividends paid are higher, retained profits are less and vice versa. The organisation pays higher dividends, shareholders are very happy as they get more recurring income and the company may be able to gain the confidence of the shareholders. However, the organisation can be in financial problems as payment of dividend results into the withdrawal of profits from the business. On the other hand, if the organisation pays less dividend, the organisation may be in a favorable situation. However, the shareholders are likely to be offered. As such, the organisation is required to take the decisions regarding the payment of dividend in such a way that neither the shareholders are offended nor the organisation is in financial problems. As such, dividend policy decisions are the strategic financial decisions and are connected with the answers to the questions like:

What are the forms in which the dividends can be paid to the shareholders?

What are the legal and procedural formalities to be completed while playing the dividend in different forms?