Quora Answer: If Someone Invests in Your Company, What Percentage of Profit Should They be Getting Monthly?

The following is my answer to a Quora question: “If someone invests in your company, what percentage of profit should they be getting monthly?” 

When someone invests in a company, they take an equity stake.  This size of the stake depends on the value of the shares sold.  This stake does not entitle shareholders to a monthly percentage of profit, since that is not how company accounts are done. 

The audited accounts of the business are presented to the board.  The board proposes a dividend per share based on the net profit declared.  If there is no net profit, then no dividend need be issued.  That being said, just because a net profit is declared, does not mean the board is oblige to propose a dividend to be paid out.  Sometimes, the net profit may not be substantial, or the company has other uses for retaining the funds.  These are normally annual affairs.  In the event of an exceptional windfall for the company, such as from the disposal of significant assets, or other unplanned revenue, the board may choose to issue a special dividend. 

It would be unusual for a board to issue some sort of monthly dividend to shareholders as profit share.  This would open a Pandora’s box of compliance and audit issues, and the authorities may even take exception to this, and classify this as monthly income, which would have tax implications.