As a stock investor, you would certainly consider the existence of\ndividends an attractive matter worthy of attention. Indeed, dividends\nare part of a company\u2019s profits that can be distributed to shareholders\nin accordance with the company\u2019s decision and applicable\nregulations.<\/p>\n
However, a company cannot simply distribute all of its profits to\nshareholders. There are a number of dividend distribution rules that\nneed to be observed, ranging from the obligation to set aside reserves,\nthe decision of the General Meeting of Shareholders (RUPS), to\nprovisions regarding interim dividends.<\/p>\n
So, what are the actual rules for dividend distribution in Indonesia?\nHow much dividend can be distributed to shareholders and how is it\ncalculated? Read the explanation below.<\/p>\n
Dividend Distribution Rules in Indonesia<\/p>\n
One of the main legal bases governing dividend distribution is Law\nNumber 40 of 2007 concerning Limited Liability Companies (UUPT). This\nLaw also regulates provisions regarding the use of company profits,\nincluding dividend distribution as set out in Articles 70 to 73\nconcerning the Use of Profits.<\/p>\n
For public companies, the RUPS mechanism is also related to the\nprovisions of the Financial Services Authority (OJK), one of which is\nthrough POJK Number 15\/POJK.04\/2020 concerning the Plan and Conduct of\nthe General Meeting of Shareholders of Public Companies.<\/p>\n
This Regulation governs many matters, from the holding of the annual\nRUPS, RUPS procedures, to the decisions and number of RUPS\nparticipants.<\/p>\n
Thus, dividend distribution rules essentially concern not only what\npercentage of profit is distributed, but also the company\u2019s condition\nand its decision-making mechanism.<\/p>\n
Here are matters you need to pay attention to regarding the rules for\nshare dividend distribution.<\/p>\n
Based on Article 70 of the UUPT, which states: \u201cThe Company is\nobliged to set aside a certain amount of net profit each financial year\nfor reserves.\u201d<\/p>\n
This obligation applies if the company has a positive profit balance.\nThe setting aside is carried out until the reserves reach at least 20%\nof the issued and paid-up capital.<\/p>\n
This means that before all net profit is used for various purposes,\nthe company must pay attention to the obligation to establish reserves.\nThese reserves serve as a form of protection for the company\u2019s financial\ncondition should it suffer losses in the future.<\/p>\n
Based on Article 71 of the UUPT, which states: \u201cThe use of net\nprofit, including the determination of the amount to be set aside for\nreserves as referred to in Article 70 paragraph (1), shall be decided by\nthe RUPS.\u201d<\/p>\n
The RUPS, or General Meeting of Shareholders, is a meeting attended\nby shareholders to make important decisions. Thus, the decision\nregarding the distribution of profits to shareholders is not determined\nsolely based on investors\u2019 wishes.<\/p>\n
In the RUPS, the company can determine for what purposes net profit\nwill be used, such as:<\/p>\n
dividend distribution;<\/p><\/li>\n
addition to reserves;<\/p><\/li>\n
expansion needs;<\/p><\/li>\n
or other uses in accordance with the RUPS decision and applicable\nregulations.<\/p><\/li>\n<\/ul>\n
For public companies, the annual RUPS must be held no later than six\nmonths after the end of the financial year. Provisions regarding the\nholding of the RUPS are regulated in POJK 15\/POJK.04\/2020.<\/p>\n
One of the important matters in dividend distribution rules is the\ncondition of the company\u2019s profit balance, referring to Article 71 of\nLaw No.\u00a040 of 2007:<\/p>\n
The use of net profit, including the determination of the amount\nto be set aside for reserves as referred to in Article 70 paragraph (1),\nshall be decided by the RUPS.<\/p><\/li>\n
All net profit after deducting the amount set aside for reserves\nas referred to in Article 70 paragraph (1) shall be distributed to\nshareholders as dividends, unless otherwise determined in the\nRUPS.<\/p><\/li>\n
Dividends as referred to in paragraph (2) may only be distributed\nif the Company has a positive profit balance.<\/p><\/li>\n<\/ol>\n
This means that if the current year\u2019s net profit has not covered all\naccumulated losses from previous years, the company cannot distribute\ndividends because it still has a negative net profit balance.<\/p>\n
Thus, a company that has just recorded a profit is not necessarily\nautomatically able to distribute dividends. The condition of the profit\nbalance and previous accumulated losses must also be considered.<\/p>\n
So, is a company obliged to distribute all net profit to\nshareholders? Not always.<\/p>\n
Based on Article 71 of the UUPT, it is stated that \u201cAll net profit\nafter deducting the amount set aside for reserves may be distributed to\nshareholders as dividends, unless otherwise determined in the RUPS.\u201d<\/p>\n
This means that a company may decide not to distribute all net profit\nas dividends.<\/p>\n
For example, a company obtains a net profit of Rp1 trillion. After\nconsidering expansion needs, cash conditions, company obligations, and\nreserve requirements, the RUPS may decide that only part of the profit\nis distributed as dividends and the remainder is retained by the\ncompany.<\/p>\n
This is what makes the dividend payout ratio of each company\ndifferent. The dividend payout ratio is a ratio that shows how much of a\ncompany\u2019s profit is distributed to shareholders in the form of\ndividends.<\/p>\n
In addition to dividends decided at the RUPS after the end of the\nfinancial year, there are also interim dividends. Interim dividends are\ntemporary dividends declared and paid before the company\u2019s annual\nprofit, usually made quarterly.<\/p>\n
This is based on Article 72 of the UUPT, which states that interim\ndividends may be distributed if the company has a positive profit\nbalance and the distribution is decided by the Board of Directors after\nobtaining approval from the Board of Commissioners.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/dividend-distribution-rules-legal-basis-mechanism-and-how-to-calculate-them-1786780215", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }