Maintaining a company's capital is a basic principle. Profit may be paid to the company's assigned shareholders / members as follows: -
● The company’s available amount for distribution to its shareholders / members shall not
exceed the amount of profit that the company achieved ;
● For a Paid-in capital, it includes share premium and capital redemption reserve, which
should not be used for distribution to its shareholders until the company winding-up so far.
In Hong Kong, the Companies Ordinance, Clause. 117 of Table A provides that a company’s paid dividends to shareholders should only be a part of the Company's profit section. This rule ensures that the company's capital is not returned to its shareholder / member, so as to maintain creditors and shareholders / members' interests.
s. 79B stipulates that the company's profits available for distribution is equal to its accumulated realized profits less its accumulated losses. The "Companies Ordinance", the "Stock Exchange Listing Rules" and the "Hong Kong Society of Accountants Accounting Standards" provide guidelines on realization of profits and losses.
When a director seeing that, at the end of the financial year, the company will generate sufficient profits, they can declare dividend for the year (Table A, paragraph 16). This declaration does not require the approval from shareholders at general meeting.
Where at the end of a financial year, the directors may realize the total profit by making the decision declaring a final dividend for the year. And in the subsequent general meeting, to issue the dividend cheque / warrant only after passing the said resolution.