Having watched shark tank, I’m curious how dividends work in small companies. I know the show is nothing like reality, it was just the basis for this question.
If I have a company I had two different early investors- one who has a 10% share and one who has a 15% share, who determines when dividends can be drawn?
If my company gets to a point where it’s earning enough revenue to net 100k profit after reinvesting for growth, what’s to stop me from issuing myself a 100k salary instead of receiving profit in terms of dividends?
In: Economics
The investors will require clauses in the operating agreement. These often include limits on spending above a threshold without approval and specifics on compensation.
Experienced investors know how to structure the agreement so everyone makes money.
Edited to add:
Also, as the person running the company, you have a fiduciary responsibility to protect the interests of the shareholders.
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