Introduction
Dividend payments are a key mechanism for returning value to shareholders.
In this article we take a look at general principles governing the process, applicable laws and financial determinations to be made in three jurisdictions: the British Virgin Islands (BVI), Cayman Islands and Hong Kong.
In each jurisdiction distributions by dividend are governed by statutory requirements that cover both legal and financial steps to be taken. The mechanism and manner of declaring dividends is also governed by the content of a company’s memorandum and/or articles of association (constitutional documents).
General Process and Decision Making
In each jurisdiction the following processes are followed. While not exactly the same they all seek to provide a framework that protects the company, its shareholders and ensures prudent exercise of the powers of the directors.
- Financial framework: Generally the laws and the constitutional documents of a company will require or provide a framework for determining the financial prudence of the declaration of a dividend given the financial circumstances of that company. It would be imprudent for example for a company to bankrupt itself by paying out cash it simply does not have available. Prudence might require involvement of auditors or accountants, in order to prepare an accurate picture of a company’s finances and ability to pay dividends.
- Legal framework: Similarly, for both legal and governance purposes, directors and sometimes shareholders must approve the payments. The mechanism is by resolution in which the facts of the financial position of the company is reviewed and following the terms set out in the laws and constitutional documents of the company the directors and shareholders will make determinations that ultimately lead to making lawful dividend payments.
- Governance: The ability of a company to follow the above financial and legal frameworks and the proper documentation of the steps and decisions made in the declaration of a dividend would promote good governance in the company. It also provides evidence that directors are fulfilling their fiduciary responsibilities.
- Tax considerations: We have not dealt with tax in this piece, but it is key for all three jurisdictions that at company level the payment of dividends is not specifically taxed. But not all shareholders are as fortunate as the residents of all three of these jurisdictions, and they may have tax considerations on receipt of distributions levied by their country of tax residence. It would be prudent for the directors to consider the circumstances of individual shareholders, if possible.
Legal and Governance Considerations
Documenting the process by passing a resolution prior to declaring dividends supports legal certainty and good governance in several respects:
- Legal compliance: A resolution evidences that the company has complied with statutory and constitutional requirements, including solvency and profit thresholds.
- Financial oversight: Directors are required to assess the company’s financial position before approving a distribution, promoting responsible stewardship.
- Transparency and accountability: Documented resolutions provide a clear audit trail, supporting internal governance and external reporting obligations.
- Creditor protection: Formalising the decision-making process helps ensure that dividend payments do not compromise the company’s ability to meet its obligations.
- Alignment with international standards: Requiring resolutions reflects global best practice and enhances investor confidence in the company’s governance framework.
By Country Legal Framework for Dividend Resolutions
British Virgin Islands
Under the BVI Business Companies Act (Revised), a company may declare dividends by resolution of the directors or members, subject to its constitutional documents. While the legislation provides flexibility, in practice, a formal resolution is generally required. Directors must be satisfied that the company satisfies the statutory solvency test—namely, that it is able to pay its debts as they fall due and that its assets exceed its liabilities.
Cayman Islands
In the Cayman Islands, dividends may only be paid out of profits available for distribution. A resolution of the board is typically required to declare a dividend, with directors confirming that the company remains solvent following the payment. Although the Companies Act (Revised) does not prescribe a specific form of resolution, documenting the decision is considered best practice and supports directors in discharging their fiduciary duties.
Hong Kong
The Companies Ordinance (Cap. 622) provides that dividends may only be paid out of profits available for distribution. A resolution of the members in general meeting is usually required, unless the articles of association empower the directors to declare interim dividends. The resolution serves as formal confirmation that the company has complied with the statutory requirements and maintains sufficient distributable reserves.
Conclusion
In the BVI, Cayman Islands and Hong Kong, the declaration of dividends by resolution is both a legal requirement and a governance safeguard. It ensures that distributions are made lawfully, responsibly and transparently, protecting the interests of shareholders, creditors and the company itself. Incorporating this practice into corporate procedures reinforces financial discipline and supports long-term corporate integrity.
Maintaining proper documentation is equally critical at the end of a company’s life. Whether winding down operations or preparing for a formal strike-off or liquidation, clear records of dividend declarations and board decisions help ensure a smooth and compliant exit process. Well-kept governance records can also mitigate risk and facilitate regulatory clearance or shareholder approval during dissolution.
At Marbury, we support clients across the full corporate lifecycle—from incorporation and day-to-day compliance to restructuring and orderly exit. Our experienced team ensures that your corporate decisions are implemented with precision, aligned with local requirements and international best practice. To learn more about how we can assist your business, please get in touch at info@marburys.com or reach out to your usual Marbury relationship manager.
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