As a founder helping to establish a new business, expecting returns for all your efforts is an evident matter. These can be in the form of compensation, including dividends.
Whether you have dividends rights or no is determined by your ownership status and your company’s dividend policy.
How to identify your rights? In this article, I will provide an overview of whether startup founders get paid dividends or no!
Let me start by explaining what a founder is?
Founders are typically the core team of a company; they assist with the business’s finance during its early stages.
A company’s key employee, whose efforts are critical to its success, can also be considered a founder.
The total number of founders depends on the size of the business. A small business with a very low budget will typically have a small number of founders.
Larger companies with bigger objectives, on the other hand, will likely have many founders to contribute to the company’s success and goals.
Founders normally own a portion of the business.; hence, they are entitled to a share of the company’s profits.
These profits are distributed in the form of “dividend payments” and are paid at whatever time as set out by the founders.
The greater the ownership share, the bigger the dividend payments are.
- Dividend Policy:
However, a company’s dividend policy may not require to make any dividend payment. Such policy may state to reinvest the company’s profits into the business instead of being distributed to the founders.
This is determined by the founders when drafting their company’s by-laws. Suppose they believe that their business will become more profitable and reach milestones. In that case, they will likely include a provision in the by-laws stating that profits are reinvested instead of distributed.
Of course, for a specific period of time. Whenever the company is ready to distribute profits, founders can translate this into the by-laws by vote.
- Ownership Status:
Pay attention to the fact that only founders holding a portion of the company’s ownership stake are allowed to receive dividends. Founders without any ownership stake, won’t get paid!
If you are ready to start drafting your startup dividend policy, feel free to visit lexyom.com, get in touch with one of our experts, and let’s get started!