Sridhar Ayengar ploopster at gmail.com
Tue Oct 16 15:25:45 CDT 2007

J Blaser wrote:
>>>>>> Do stockholder dividends count against profits?
>>>>> I do not know the details, but the idea is to take the profit before
>>>>> taxes and either shovel them back into the company in some fashion,
>>>>> manage to write them off as some sort of loss, and/or let the
>>>>> shareholders take it. It is much easier for individual shareholders to
>>>>> shelter themselves from taxes, and isolates the tax liability.
>>> Dividends are paid out AFTER all expenses (including taxes) are 
>>> otherwise accounted for.  Dividends are paid out of profits, not 
>>> revenues, if you get my meaning, since the dividend is a distribution 
>>> of 'net income' to the company's owners, that is, the shareholders.  
>>> The company first must pay taxes on its gross income, leaving net 
>>> income to be distributed to the shareholders according to the 
>>> determination of the board of directors.
>>> Dividends, indeed, are a perfect example of double-taxation.  Of 
>>> course, YOU have to pay taxes, too, on any dividends that you receive 
>>> as a shareholder, thus the 'double-taxation' comment.  And dividends 
>>> are always considered to be short-term returns, thus are taxed at 
>>> your normal tax rate.
>>> As was mentioned, a corporation WANTS to minimize income, trying to 
>>> shuffle off as much as possible as an expense, thus minimizing the 
>>> taxes, and if these 'expenses' are bonuses to employees (including 
>>> the CEO, for sure), well then that can be treated as an expense, 
>>> before taxes come into the picture.  At least bonuses to employees 
>>> are only taxed once, as income to the individual.
>> So what exactly is to stop a corporation from writing bylaws that, in 
>> effect, employ each shareholder as a part-time employee who gets paid 
>> their dividend as salary?
> Nothing.  If that were to be possible for the large-ish corporations out 
> there, I'm sure that would be a preferred route to take.


> But there is no way that a Mega-, Large-, or even a Mid-sized 
> corporation could have thousands of shareholders on the payroll!  ;-)  

Well, there's a fair amount of administrative overhead dealing with a 
publicly traded corporation already.  I wonder how big of an increase it 
would be to just call the shareholders employees.

> Besides, what are you going to have 80-year old Mr. and Mrs. Doe do for 
> you if you are a Gulf of Mexico oil exploration outfit?  :-o

Nothing except own the shares.  It would be the only responsibility of 
the job.

Peace...  Sridhar

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