Instituto de Estudios Políticos y Derecho Público "Dr. Humberto J. La Roche"
de la Facultad de Ciencias Jurídicas y Políticas de la Universidad del Zulia
Maracaibo, Venezuela
Esta publicación cientíca en formato digital es continuidad de la revista impresa
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197402ZU34
ppi 201502ZU4645
Vol.39 N° 70
2021
Recibido el 22/03/2021 Aceptado el 15/06/2021
ISSN 0798- 1406 ~ De pó si to le gal pp 198502ZU132
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Vol. 39, Nº 70 (2021), 119-138
IEPDP-Facultad de Ciencias Jurídicas y Políticas - LUZ
Legal Aspects of Dividend Payment in a
Limited Liability Company
DOI: https://doi.org/10.46398/cuestpol.3970.07
Oleksandra S. Yavorska *
Pylyp D. Pylypenko **
Svitlana M. Synchuk ***
Iryna I. Shpuhanych ****
Yustuna Y. Samagalska *****
Abstract
The objective of the study was to identify forms, main objectives
and regulatory measures that can improve the development of
the legal regulation of dividend payments in a limited liability
company. The study involved three methods: direct observation,
comparison, and analysis of the content of documents that
provide legal regulation of dividend payments at the state and
interstate levels. Eight important factors inuencing dividend
policy are presented. The success of business activity depends directly
on the regularity of prots and the amount of capital of the company,
while it is inversely dependent on the regularity and size of dividends. It
is concluded that the type and form of dividend policy is partly governed
by the rule of law and partly determined by non-legal business factors. An
optimal dividend policy means that there must be an appropriate balance
between the payment of current dividends and the future growth of the
company’s prots. In this case, the procedure established by law and the
sequence of shares preceding the payment of dividends indicates the partial
entrepreneurial freedom of the participants in this case.
Keywords: determining factors; dividends; dividend payments
procedure; dividend policy; limited liability company.
* Doctor of Law, Professor, Intellectual Property, Information and Corporate Law Department, Law
Faculty, Ivan Franko National University of Lviv, Lviv, Ukraine. ORCID: https://orcid.org/0000-
0002-6938-2057. E-mail: matviichukolexander8@gmail.com
** Doctor of Law, Professor, Social Law Department, Law Faculty, Ivan Franko National University of
Lviv, Lviv, Ukraine. ORCID: https://orcid.org/0000-0002-3382-3033. E-mail: pylypenko@lnu.edu.
ua
*** Doctor of Law, Professor, Social Law Department, Law Faculty, Ivan Franko National University of
Lviv, Lviv, Ukraine. ORCID: https://orcid.org/0000-0003-2711-5919. E-mail: synchuk@lnu.edu.ua
**** PhD in Law, Associate Professor, Intellectual Property, Information and Corporate Law Department,
Law Faculty, Ivan Franko National University of Lviv, Lviv, Ukraine. ORCID: https://orcid.org/0000-
0002-4149-8939. E-mail: farber.1r1@gmail.com
***** PhD in Law, Associate Professor, Intellectual Property, Information and Corporate Law Department,
Law Faculty, Ivan Franko National University of Lviv, 79000, Lviv, Ukraine. ORCID: https://orcid.
org/0000-0001-7313-8623. E-mail: t21535673@gmail.com
120
Oleksandra S. Yavorska, Pylyp D. Pylypenko, Svitlana M. Synchuk, Iryna I. Shpuhanyc y
Yustuna Y. Samagalska
Legal Aspects of Dividend Payment in a Limited Liability Company
Aspectos Legales del Pago de Dividendos en Una
Sociedad de Responsabilidad Limitada
Resumen
El objetivo del estudio fue identicar formas, objetivos principales y
medidas regulatorias que pueden mejorar el desarrollo de la regulación
legal del pago de dividendos en una sociedad de responsabilidad limitada.
El estudio involucró tres métodos: observación directa, comparación y
análisis del contenido de los documentos que proporcionan la regulación
legal del pago de dividendos en a nivel estatal e interestatal. Todo indica que,
el éxito de la actividad empresarial depende directamente de la regularidad
de los benecios y la cantidad de capital de la empresa, mientras que es
inversamente dependiente de la regularidad y el tamaño de los dividendos.
Se concluye que, el tipo y la forma de la política de dividendos se rige en
parte por el estado de derecho y en parte está determinada por factores
comerciales no legales. Una política de dividendos óptima signica
que debe haber un equilibrio adecuado entre el pago de dividendos
actuales y el crecimiento futuro de las ganancias de la empresa. En este
caso, el procedimiento establecido por ley y la secuencia de acciones que
preceden al pago de dividendos indica la libertad empresarial parcial de los
participantes en este asunto.
Palabras claves: factores determinantes; dividendos; procedimiento de
pago de dividendos; política de dividendos; sociedad de
responsabilidad limitada.
Introduction
Corporations have existed for many years, but a limited liability company
(hereinafter — LLC) is a fairly new type of business that has proved popular
among small business owners (Business Jet, 2019). According to national
statistics in 2020, the number of LLCs was 50% in the total number of legal
entities —35 — in Ukraine (Ukrstat, 2020).
The purpose of all enterprises is to make a prot by its founders, and
therefore dividend payment is a guideline in the activities of LLC and its
owners. If the results of the company’s activities show that the past year
was successful, the General Meeting of participants may decide either to
pay dividends or to accumulate funds for further business development
(Captain Contrat, 2017).
When LLC members have a corresponding share in their companies,
they prot from this share dierently and face very dierent tax problems
(Payet, n. d.). Despite the fact that there is no denition of “dividends” in the
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CUESTIONES POLÍTICAS
Vol. 39 Nº 70 (2021): 119-138
legislation governing the activities of LLC, dividends (from Latin dividendus
— the one that is subject to division) is called the part of the company’s
prots distributed among its founders (Pomulіeva and Remenyuk, 2017).
It turns out that it is not possible to collect dividends for the reporting
period in court if the relevant decision of the General Meeting of LLC
participants was not made. In this case, it is possible to apply to the
commercial court to make a decision on the collection of dividends, if there
is a relevant decision of the General Meeting of the company’s participants.
It is possible to demand recovery of the amount of debt incurred, taking into
account the established ination index for the entire period of delay and an
additional 3% per annum of the overdue amount in court only (Supreme
Economic Court of Ukraine, 2016).
The study will provide further development and improvement of
guarantees at the legislative level on the fairness and expediency of regular
payment of dividends in LLCs, taking into account the experience of other
countries.
In the context of a global pandemic associated with an increase in human
morbidity caused by the previously unknown to mankind Covid-19 virus,
the company’s physical business contacts have sharply reduced. Quarantine
restrictions have aected the decline in companies’ protability, including
LLCs. For the stated reason, as well as the fact that the LLC is characterised
by limited liability of its members, the amount and regularity of dividend
payment has decreased. Therefore, some legal aspects related to their
dividend payments have become relevant in business.
1. Literature Review
At the national level, the procedure for deciding on the dividend payment
in LLCs is set out in the Law of Ukraine “On Limited and Full Liability
Companies”. In particular, the General Meeting of participants considers
the distribution of the company’s net prot and dividend payment.
Chernenko (2019) notes that the payment of dividends depends not only
on the established dividend policy, but also on the owners’ willingness to
pay them.
Refusal of periodic dividend payments is justied by reinvestment of
the received prot in the company’s further development. The main factors
inuencing the company’s dividend policy are: protability, structure of
past dividends, legal norms, nancial leverage, investments, etc. (Murekefu
and Ouma, 2012). A group of scholars, Pinto and Rastogi (2019) found
that size and protability have a signicant positive eect on dividend
policy. Business risk and debt have a signicant negative relationship with
dividends, and therefore it is justied to adhere to a stable dividend policy.
122
Oleksandra S. Yavorska, Pylyp D. Pylypenko, Svitlana M. Synchuk, Iryna I. Shpuhanyc y
Yustuna Y. Samagalska
Legal Aspects of Dividend Payment in a Limited Liability Company
The freedom to do business is enshrined in Article 16 of the Charter of
Fundamental Rights of the European Union, which has become a legally
binding document, with the same legal force as international treaties (Usai,
2019).
Spilnyk and Zahorodna (2014) note that the term “dividend” for
participants is income, and for the company it is a payment. Sondakh
(2019) found that the company’s policy of retaining dividends negatively
and signicantly aects the company’s value. Investors prefer companies
that distribute dividends because they are condent in the return on their
investment. There are four types of dividend policy: regular dividend policy;
stable dividend policy; irregular dividend policy; lack of dividend policy
(Borad, 2014). Dividend policy is a reection of the company’s nancial
performance (Thakur, n. d.).
Due to the high rates of taxes levied on dividends, investors are often
reluctant to receive dividends and leave the accumulated prots for the
company’s further development (Breaking Down Finance, n. d.).
The law allows members to receive an interim dividend payment by the
end of the reporting year. In case of limited liability companies, interim
dividend payment may be submitted by the manager/head of the company
(if the company has a supervisory board — upon its approval). If the
report after the payment of interim dividends shows that the company is
not capable to pay dividends, the interim dividends shall be payable. In
particular, this clause protects the company’s creditors and suppliers
(Kertész, 2016).
Legal systems limit the rights of company members to prot by creating
a special reserve fund or limiting the resources (prots) to be distributed
(Simčina, n. d.).
The aim of the study: Identication of ways, main objectives and
regulatory measures that can improve the development of legal regulation
of dividend payment in LLCs.
Research objectives:
• determine the procedure, amount, and possible restrictions in the
dividend payment in LLC.
• review the foreign experience of legal regulation of dividend
payments in LLC.
• formulate proposals to increase the eciency of regulation of
dividend payment in LLC.
The research hypothesis is in the form of statements about concepts that
can be true or false if they relate to an empirically observed and veried
phenomenon.
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CUESTIONES POLÍTICAS
Vol. 39 Nº 70 (2021): 119-138
Based on the empirical ground and research methodology, the
hypotheses are formulated as follows:
a) the dividend payment policy in LLC aects the company’s value and
success.
b) the tax policy of dividends signicantly aects the frequency and
willingness to receive dividends by the company’s members.
c) dividend payment in LLC is determined by legal norms only, and there
are no other, informal factors that aect the frequency and amount
of dividend payment.
2. Methodology
The main empirical ground of the study is collected using three methods:
direct observation, comparison, and analysis of the content of documents
that provide legal regulation of dividend payment in LLC at the state and
interstate level. In the course of direct observation, laws, documents and
regulations governing the procedure and features of dividend payment to
LLC participants were identied. The grounds, conditions, procedure and
frequency of dividend payment at the national and interstate levels have
been established. The signicance and priority of regulatory documents that
determine the dividend payment procedure in the company are provided.
In most cases, the frequency of dividend payments is determined by the
company in the constituent documents or in the decision of the General
Meeting based on the results of the reporting period. If the charter stipulates
the payment of dividends at the end of the reporting year, the decision to
pay intermediate dividends without making appropriate changes to the
constituent documents will be a direct violation of the charter’s provisions.
The review of modern scientic opinion found that in addition to formal
rules and procedures, there are many other factors that determine the
frequency of payment and the amount of dividends.
Besides, a study of current legislation found that the procedure for
distribution of prots in the form of dividends is quite exible and formally
regulated by the company’s charter, while informally depends on dividend
policy.
When using the method of comparison, it is established how the
countries provide guarantees of dividend payments in LLCs. In times of
crisis or in other unforeseen cases the company will not be able to ensure
timely dividend payment without an adequate amount of capital reserve
fund.
124
Oleksandra S. Yavorska, Pylyp D. Pylypenko, Svitlana M. Synchuk, Iryna I. Shpuhanyc y
Yustuna Y. Samagalska
Legal Aspects of Dividend Payment in a Limited Liability Company
Comparative analysis shows that the company’s protability is the main
factor determining the dividend policy. However, the focus on long-term
protability, combined with capital reinvestment will extend the company’s
life cycle.
The analysis of the content of various documents involved the
information posted on social networks, scientic journals and on news
websites. The current volume and sources regulating the dividend payment
procedure in LLCs was established. The tendencies, objectives and
directions of legal regulation of dividend payment in LLCs are studied.
3. Results
A LLCs is a type of business association. Therefore, LLCs shall create a
reserve fund in in the amount established by the constituent documents,
but not less than 25 percent of the company’s authorised capital. The
main feature of dividends paid in LLCs, in contrast to open joint stock
companies, is that they are not paid regularly (Verkhovna Rada of Ukraine,
2018a). In France, each company must have a “reserve” of at least 10% of
its capital. Until this threshold is reached, it must reserve 5% of its prots
annually (Captain Contrat, 2017). In the United Kingdom, the reserve fund
for dividends is set at 15%
(MRSC, 2021).
The authorities typically discuss the need for contingency funds in
the context of securing future capital expenditures, debt obligations,
emergencies, economic downturns and imminent contingencies that may
cause nancial diculties. It is important to clearly dene the intended
use of each reserve of the fund and the balance of funds created by
the organisation. According to Link Group Dividend Monitor, in 2020
investment funds increased the amount of dividends by 4.2%, despite the
fact that payments in the UK decreased by 38% and global dividends —
by 12.2%. In the midst of the Covid-19 crisis, more than three-quarters of
the world’s trusts increased dividend payments. This success is due to the
signicant reserves of investment funds. Income reserves are an important
feature of investment funds, they can be distributed in the future. This is
how they dier from open investment companies, which have to pay all
their dividends each year (Palmer, 2021). Thus, the company’s reserve fund
is extremely important in unforeseen cases, such as the economic crisis,
debt repayment upon court decision, etc.
It should be noted that there is some uncertainty as for the terms for
dividend payment. In particular, in accordance with Part 4, Art. 26 of the
Law of Ukraine “On Limited and Full Liability Companies”, dividends
shall be paid within a period not exceeding six months from the date of
the decision on their payment, unless otherwise provided by the company’s
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CUESTIONES POLÍTICAS
Vol. 39 Nº 70 (2021): 119-138
charter or the decision of the General Meeting of participants (Verkhovna
Rada of Ukraine, 2018b). These rules recommend the payment of dividends
based on the decision of the General Meeting, they leave these bodies wide
freedom in determining the date of payment, and most importantly — they
do not determine the consequences of not specifying this date (Russell
Bedford Poland, 2018). As mentioned above, the only civil consequences for
LLCs are ination indices and an additional 3% per annum of the overdue
amount. However, as a result of the payment of unforeseen expenses in the
form of payment of interest on dividend arrears upon a court decision, the
law excludes the obligation to include these amounts in those subject to
taxation (Humanitarian Portal, 2021).
Under national law, dividends are paid out of net income for any period
that is a multiple of a quarter, unless otherwise provided by the charter
(Bartlett, 2020). Intermediate dividends can be distributed among company
members without knowing how much nal prot the company will receive.
Such a distribution is risky if the deposit remains higher than the actual
prot (Janquert, 2020).
In addition to the regulations and rules that determine the dividend
payment procedure in LLC, there are a number of legal restrictions and
prohibitions which may prevent dividend payment. Based on the results of
the analysis of the Tax Code, the Code of Bankruptcy Procedures, the Law on
Limited Liability Companies (Verkhovna Rada of Ukraine, 2018a; 2018b;
2019), as well as considering the entities introducing such restrictions, we
propose to present them schematically in Figure 1 (Regulatory restrictions
on dividend payment in LLC). Without taking into account such restrictions,
it is not possible to make an informed legal decision on dividend payment.
Dividends are in fact a form of prot, so they are subject to the relevant
taxes, fees and other mandatory payments. For example, the main advantage
of LLCs over corporations in the United States is that LLC owners are not
subject to double taxation (Murray, 2021). The concept of double taxation
does not apply to LLCs. Thus, despite the fact that the LLC as a legal entity
is not subject to taxation, the share of a foreign partner or participant of
the LLC or actually related income of the LLC is taxed (Schneidman, 2017).
The national system of taxation of LLC is a bit more complicated. The
founders of LLC can be both individuals and legal entities, both residents
and non-residents. Nevertheless, in addition to the founders, the LLC also
has a burden of paying taxes under the general or simplied system.
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Oleksandra S. Yavorska, Pylyp D. Pylypenko, Svitlana M. Synchuk, Iryna I. Shpuhanyc y
Yustuna Y. Samagalska
Legal Aspects of Dividend Payment in a Limited Liability Company
Figure 1. Regulatory restrictions on dividend payment
Source: own elaboration.
To arrange the type and amount of dividend encumbrances, we propose
schematically present the types of taxes, payments and the amount of
interest on dividends in LLC in Table 1. The information given in Table
1 is the author’s own development and relates to taxes and mandatory
payments related to the cash amount of dividends. At the same time, when
paying dividends in kind, it is also necessary to pay additional VAT in the
amount of 20%. LLCs paying single tax are not entitled to pay dividends in
non-cash form, because according to paragraph 291.6 of the TCU they are
allowed to make payments for shipped goods only in cash. The form of such
payment can be cash or non-cash.
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Table 1. Taxes and dividend payments in LLC (author’s own
development)
Who pays taxes and fees
LLC
Individual (resident and non-resident)
Resident
LLC participants
Legal entity
Non-
resident
Type of tax, payment
Income
tax
Advance
payment
when
paying to
resident
legal
entities
Repatriation tax for
non-resident legal
entities
Personal
income tax
Military fee
Income tax
General tax system
The size id determined by the TCU
The size is determined
by the laws of the
country of the company’s
registration
18%
18%
(except in
cases of
exemption
of legal
entities
from
payment)
15% (5% according
to the international
agreement, provided
that the non-resident
legal entity owns
more than 20% of
the LLC’s property)
5% (18%
when
the xed
amount of
dividends is
paid)
1.5%
18%
Simplied tax system
5% (VAT
excluded)
-
9%
(18% when
the xed
amount of
dividends is
paid)
5% (VAT excluded)
3% (VAT
including)
9%
(18% when
the xed
amount of
dividends is
paid)
3% (VAT
included)
Source: own elaboration.
So the tax advantage of LLC is its exibility. Depending on the form of
payment (in cash or in kind) and the beneciary of dividends: individual
or legal entity, resident or non-resident, the amount of taxes and required
128
Oleksandra S. Yavorska, Pylyp D. Pylypenko, Svitlana M. Synchuk, Iryna I. Shpuhanyc y
Yustuna Y. Samagalska
Legal Aspects of Dividend Payment in a Limited Liability Company
payments may increase or decrease signicantly. Thus, depending on the
taxation system and the beneciary of dividends, the budget will receive
from 12% to 54% of taxes and payments from the LLC and its participants.
The undeniable tax disadvantage for LLCs is the rather large amount of
taxes and mandatory payments withheld from dividends.
The main factor in determining the dividend policy is to maximise the
prots of the company’s owners. In practice, it has been found that most
companies rst dene the amount of dividends as assets, and the balance
is retained earnings. That is, if possible, the rm should withhold a return
on investment, which in turn increases prots than the value of retained
earnings. If the investment is not provided, the company must pay prots
as dividends. This means that the company must treat retained earnings
as assets, and dividends as passive residuals (Dhaval, n. d.). At the same
time, there is an inverse relationship between the frequency of dividend
payments and the company’s protability. The more often dividends are
paid, the faster the company’s prots will decrease (Docsity, n. d.).
Taking into account the above, we can make a list of general important
factors that may aect the dividend policy in the company showing them
schematically in Figure 2. They include:
a) Number of owners and subsidiaries. Companies with a large number
of owners and subsidiaries will nd it dicult to reach a common
agreement on maintaining a conservative dividend policy. On
the other hand, a company with a small number of owners and
subsidiaries is more likely to have a well-established dividend policy.
b) The company’s age. The younger the LLC, the smaller the size of the
reserve fund, the smaller the amount of dividends they can allow to
pay. Besides, the older the company, the higher the corporate culture
of dividend payment.
c) The nature of the industry to which the company belongs. The
business sector, where earnings are stable, is likely to provide greater
dividends, the rate of return will be higher.
d) Availability of investments. Companies with the prospect of protable
investments will seek to increase their prots and the frequency of
their dividends. A study of 179 companies found that 64% of debt
investors (unlike other groups of investors) in the company expand
their business.
e) Availability of additional reserve funds. In the event of a nancial
crisis or unforeseen costs, cash reserves support the business at a
sucient level.
f) State and tax policy. Adopted or revoked interstate agreements to
prevent double taxation of companies, loss of business partners due
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CUESTIONES POLÍTICAS
Vol. 39 Nº 70 (2021): 119-138
to military conicts (for example, due to the war in eastern Ukraine),
as well as the level of taxes and fees set by the state signicantly aect
the success of society.
g) Ination rate. The ination rate is inversely dependent on the number
of dividends paid: the higher the ination rate, the less dividends
should be expected.
h) The global crisis. For example, due to the Covid-19 pandemic, the
world is experiencing a non-business crisis, but it is signicantly
aecting the eciency of business operations. Because of the
pandemic, governments around the world have imposed restrictions
on business (domestic and interstate) and on society. Coronavirus
has caused the reduction of dividends worldwide. A group of
researchers found that depending on the type of industry, the crisis
aects business protability in dierent ways. There is no direct
dependence of the pandemic impact on the company.
Figure 2. Factors determining the dividend policy in LLC
(author’s development)
Source: own elaboration.
The negative relationship between protability, scope of inuence and
the size of the company in terms of dividend payments proves the theory of
irrelevance of dividends as a business goal. The results show that investors
are more concerned about the future performance of companies than
current prots (Yasin et al., 2017).
So, summarising the above, we present the general procedure and
sequence of actions preceding the payment of dividends in LLC (Figure 3).
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Oleksandra S. Yavorska, Pylyp D. Pylypenko, Svitlana M. Synchuk, Iryna I. Shpuhanyc y
Yustuna Y. Samagalska
Legal Aspects of Dividend Payment in a Limited Liability Company
However, despite sucient legal certainty, given the restrictions
(including the chosen dividend policy in the company), which may aect the
dividend payment procedure, some ocials of the company may resort to
risky and dishonest actions. Sometimes, resorting to a ctitious calculation,
they set inated prots or balance in order to make illegal dividend
payments to the company participants. The Law on LLCs establishes only
joint and several liability for obligations to return payments to LLC, if
the company’s participants were misled about its nancial condition, in
particular by presenting inaccurate information in the documents of LLC,
which led to illegal payments. At the same time, other types of legal liability
for “manipulation” of the company’s balance, which leads to the payment of
ctitious dividends are not provided. Korotash (2016) also rightly proposes
to prohibit the adoption of decisions on the payment of dividends in LLCs
that have not fully formed the authorised capital.
In the course of the research, the national system of tax and dividend
payments in LLCs is schematically generalised. The peculiarity of this
generalisation, in contrast to that given by Pomulieva and Remenyuk
(2017), is the ease of use and conciseness of tax interest, as well as additional
features of the general and simplied tax system.
The regulatory restrictions for payment of dividends in LLC are
identied on the basis of generalisations of the current legislation and
positions of scholars. In this case, the general list of restrictions is divided
into two groups: internal and external, those that are directly regulated by
internal economic activity and those that appear at the initiative of third
parties, respectively.
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Figure 3. The general procedure and sequence of actions
preceding the payment of dividends in LLC (author’s
development)
Source: own elaboration.
4. Discussion
It is conrmed that the right to receive dividends from the participants
of the LLC arises only upon the decision of the General Meeting on for such
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Yustuna Y. Samagalska
Legal Aspects of Dividend Payment in a Limited Liability Company
payment. In case of the failure to pay dividends in a timely manner, they
can be collected in court, referring to the LLC participants’ liability for
monetary obligations. Similar legal positions of the Supreme Court set out
in the Supreme Court Rulings dated 30.10.2019 in Case No. 906/904/16,
dated 16.06.2020 in Case No. 910/21232/16, dated 18.10.2018 in Case No.
923/1297/14, dated 14.07.2020 in Case No. 904/6379/16, dated 03.06.2020
in Case No. 4/44-B (Supreme Court of Ukraine, 2020). In these cases,
the issue of imposing subsidiary liability for the LLC’s obligations on the
founders (participants) or other persons, including the head of the debtor.
In contrast to the proposed coverage of the peculiarities of the company’s
dividend policy and the assessment of its eectiveness by groups of scholars
Derevinska and Ischenko (2016), a list of common important factors
inuencing the company’s dividend policy was established. This takes into
account the position of a group of scholars, namely: Rohov et al. (2020),
that the nancial indicators of dividend policy accurately classify only those
rms that do not pay dividends. Therefore, these reasons are given without
taking into account the qualitative and quantitative nancial indicators.
An optimal dividend policy means that there must be an appropriate
balance between the payment of current dividends and the future growth
of the company’s prots (Simple I Learn, 2016). Dividend payment is not
the main goal of the business. To achieve success in business, the following
dividend policy will be eective: the optimal compromise between the
frequency and size of dividend payments on the one hand, and the
investment of prots in the company’s development on the other hand.
5. Recommendations
For investors:
Investors and potential investors are recommended to pay attention to
the company’s size, protability and other important factors that determine
the company’s dividend policy. They can also help investors make decisions
when acquiring a stake in the company’s authorised capital and choosing a
nancial case based on the company’s dividend policy.
For public authorities:
The results of this study can be used by nancial managers and
government policy makers to make appropriate decisions to increase
guarantees and ensure regular dividend payment in LLCs.
Besides, at the legislative level, it is recommended to strengthen the
liability of LLC’s participants for the distribution of ctitious dividends and
to prohibit unjustied and irrational distribution of prots in the form of
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dividends on the basis of a decision of the General Meeting.
In a time when the global crisis has aected many modern forms of
doing business in almost all sectors of the economy, there is a need for a
unique partnership between government and business, especially in the
regulatory system of dividend taxation.
For academicians:
It is expected that the limitations of this study will be detailed in further
empirical work, especially on the impact of regulatory constraints on the
regularity and amount of dividends paid in LLCs.
For lawyers:
It is recommended to lawyers in the recovery of arrears of previously
unpaid dividends to use the developed general procedure and sequence of
actions which precedes the payment of dividends in LLCs.
Conclusions
Thus, the legal regulation of LLCs in terms of dividend payments is quite
exible. Payment of dividends is not the main goal of business, because the
company’s success depends on the regularity of prots and the amount of
capital of the company, and inversely depends on the regularity and size of
dividends.
The results of this study conrm the hypothesis that the dividend
payment policy in LLC has a signicant impact on the company’s value and
the amount of capital. The analysis of the content of the documents allowed
identifying eight important factors that inuence the dividend policy in
LLCs. Moreover, depending on the selected dividend policy, the payment
of dividends will have a positive or negative impact on the amount of prot.
The study and arrangement of regulatory restrictions that determine
the frequency and amount of dividend payment, as well as external and
internal factors that determine the dividend policy in LLCs conrmed the
second hypothesis. In particular, the tax policy of dividends signicantly
aects the frequency and the company’ participants’ willingness to receive
dividends.
However, this study refutes the third hypothesis that the dividend
payment in LLCs is determined solely by legal provisions, while other,
informal factors aecting the frequency and amount of dividend payments,
do not exist. Despite the fact that the dividend payment procedure is
formally dened and enshrined in law, the decision of the General Meeting
and the Company’s dividend policy are the determining factors for dividend
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Yustuna Y. Samagalska
Legal Aspects of Dividend Payment in a Limited Liability Company
payment. Many researchers have tried to cover the problems of choosing
the optimal dividend policy, but still there is no decent explanation of the
reasons for choosing a certain dividend policy in the company. However, it
can be stated unequivocally that the type and form of dividend policy in LLCs
is partly regulated by law, and partly determined by business, non-legal
factors. The above general procedure and sequence of actions preceding
dividend payment in the company indicates the partial entrepreneurial
freedom of the company’s participants in this matter.
It was found that depending on the tax system and beneciary of the
dividends, the budget will eventually receive a signicant amount from
12% to 54% of taxes and fees. However, despite its exibility, Ukraine is
in the world rankings of countries in terms of business support. Therefore,
in modern conditions, the system of current taxes and fees needs to be
tempered in terms of dividend payments in LLCs.
The issue of liability for the distribution of ctitious (non-existent)
dividends in LLCs remains unresolved. Although the participants are jointly
and severally liable only for the obligation to return the company’s payments
for misleading the company’s members regarding its nancial condition, I
propose to prohibit unjustied and irrational distribution of prots in the
form of dividends based on the decision of the General Meeting. Besides,
in order to increase the eciency of regulation of dividend payment,
depending on the consequences of the failure to pay, I propose to introduce
criminal liability for such actions. Under such changes, LLC ocials will be
more careful when deciding on the payment of ctitious dividends.
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