Shareholders Return on Investment

Shareholders make investments in shares in order to earn a reasonable return on their purchase. Good succession planning needs to ensure that shareholders are properly rewarded.

Each shareholder is treated equally, pro rata to their shareholding. For example, if the Board of Directors issues a $1 per share dividend, each share receives the $1 dividend.

Shareholders typically think of this distribution as a dividend but it can be in other forms. For internally traded shares a bonus in lieu of dividend may be more tax efficient.

The Board of Directors should have an ongoing goal of both growing the value of the shares and providing an appropriate distribution on shares each year.

The Board of Directors should make the assumption that shareholders have used borrowed funds to invest in the company and should be consistent in the distribution, allowing shareholders to service loans.

Succession planning should not exclude any potential shareholders by creating barriers to becoming shareholders.

A good return on investment will create a strong market for the internal share sales for incoming shareholders which strengthens the transfer of ownership program.

Shareholders should expect both capital gains and shareholder distributions on the company shares they have invested in.

A capital gain is the difference in proceeds when shares are sold from the price when the shares were acquired. Capital gains are usually tax efficient.

Profit Distribution