What are "dividends"?

Profits of companies can be distributed to shareholders in proportion to the number of shares held. 

The part of the profit distributed to shareholders is in the form of dividends. 😊 

Definition and types of dividends:

Dividends are "the part of the profit of a joint stock company (S.A.) that accrues to each shareholder at the end of each financial year, in relation to the shares he owns".📑 

Dividends can come in many forms:

❶⠀Dividends paid in cash: these are dividends that come into the possession of shareholders in cash;

❷⠀Dividends paid in shares: these are not dividends, but can be regarded as dividends, since the company's profits are passed on to shareholders in the form of shares.

How are dividends calculated?

The company's General Meeting decides how much of the profit to distribute as dividends. This amount is divided by the total number of shares, resulting in a dividend per share.

Each shareholder calculates their dividend receivable by multiplying the dividend per share by the number of shares held. 😉

How are dividends taxed?

The application of a 5% tax rate on dividend income has been introduced in "Tax Code" of 2016 and aims to:

➤⠀dividends distributed to Romanian natural and legal persons;

➤⠀as well asdividends earned in Romania by non-residents.

Advantages and disadvantages of dividends:

➤⠀Advantage: shareholders benefit directly from company profits.

➤⠀Disadvantage: by distributing dividends, the value of a company's share decreases, by an amount that may be more or less than the value of the dividend.