What Are Distributable Profits for Singapore Business Owners?

Managing company profits and dividend distribution can be complex for any Singapore small business owner. Knowing what counts as distributable profits and how these rules affect your dividend declarations is not just good practice—it’s a legal requirement.

If you’re working with corpsec services or managing compliance in-house, having a solid understanding of these concepts is essential for sound business governance.

1. What Are Distributable Profits?

Distributable profits refer to the portion of a company’s realised profits that can legally be paid out as dividends to shareholders. This is governed by Section 403 of the Singapore Companies Act 1967.

Key points:

• Only realised profits can be distributed—these must be verified through proper financial reporting.

• Unrealised gains, share premiums, and capital reserves are excluded from distributable profits.

• Dividends must not be paid if they would reduce the company’s share capital or impact solvency.

2. What Counts as Distributable Profits?

Understanding what makes up distributable profits helps directors and company secretaries ensure compliance:

• Accumulated realised profits
  These are earnings confirmed in audited financial statements or interim management accounts. They include:
  • Retained earnings from past years

  • Revenue profits (from core business operations)

  • Realised capital gains

• Less accumulated realised losses
  Any past losses must be subtracted. These include:
  • Trading losses

  • Impairment losses

  • Realised losses on asset sales

• Exclusions (not distributable):
  • Unrealised revaluation gains (e.g., increase in property value)

  • Share premium accounts

  • Capital reserves

  • Proceeds from treasury shares

Important: Always refer to the latest audited accounts or interim financials to confirm what’s distributable.

✅ At Counto, we prioritise your savings and efficiency over hefty fees. Our team of seasoned compliance professionals expertly handles everything from company registration and nominee director services, to tax filing at unbeatable rates. Discover more about our cost-effective company incorporation packages here. 

3. How Do Distributable Profits Affect Dividend Declarations?

Dividends can only be declared and paid if the company has sufficient distributable profits. Directors and corporate secretaries must play an active role in this decision-making process.

Legal and practical considerations:

• Fiduciary duty of directors
  Directors must ensure the company remains solvent after dividend distribution. They can be held personally liable if they approve unlawful dividends.

• Verification of profits
  Before declaring dividends, many companies engage auditors to confirm the availability of distributable profits.

• Penalties for non-compliance
  Under the Companies Act, paying dividends out of non-distributable profits is an offence:
  • Fines of up to S$5,000

  • Imprisonment of up to 12 months

  • Potential recovery of dividends from shareholders who received them unlawfully

• Solvency matters
  Even if profits are distributable, the company must still be able to meet its debts when they fall due.

Summary

Distributable profits in Singapore are strictly regulated, and understanding their scope is essential for proper dividend planning. For Singapore small business owners and those working with corpsec services, staying informed of the latest financial and legal requirements ensures compliance and protects both the company and its directors. Always refer to updated financial records and work with trusted professionals to make informed decisions.

Most trusted Corporate Secretarial Services in Singapore

Don’t let regulatory complexities impede your business growth. Counto’s elite corporate secretarial services are your strategic advantage for flawless compliance and governance in Singapore’s competitive business landscape. To learn more, speak to us directly on our chatbot, email [email protected], or use our  contact form to get started.