Can a Shareholder Force a Corporation to Pay a Dividend?
- When you purchase shares of a company's stock, you become a partial owner of the company. As an owner, you are entitled to a share of the company's total profits, through dividend payments. Shareholders also have the right to vote on company issues at the annual shareholders meeting. Your total votes are based on your total shares owned. At the shareholders meetings, shareholders vote on changes to the company's bylaws, on the sale of company assets, and on possible company mergers. Shareholders also elect the company's board of directors.
- A company's board of directors oversees the daily operations of the company. Because shareholders do not have the time or ability to monitor a company's daily activities, this responsibility falls on the elected board of directors. The board of directors are in charge of representing the shareholders' interest in the company. The board's responsibilities include defining the company's policies and objectives, electing and monitoring company executives, and approving the company's annual budget. The board is also responsible for determining the company's dividend policy.
- When a company earns a profit, it has two options. It can pay out the profits to its shareholders in dividend payments, or it can reinvest the profits back into the company to increase its future growth. The board of directors is responsible for making the decision to best serve the interest of the company shareholders. Depending on the company's profitability, the board can decide to alter the size of dividend payments, add more payments throughout the year or stop paying dividends altogether. A company is never required to pay a dividend.
- The most direct way to impact your company's dividend policy is to change the board of directors. If you do not like the board's current views on dividends, nominate and vote for new members who agree to pay out more. Depending on your company's bylaws, you may also be able to vote on a change to dividend policies mandating a minimum dividend. To make any changes yourself, you must hold a large percentage of a company's shares. For small investors, its usually easier to reinvest in another company than to change a company's dividend policy.