Dividend Payment Rules In New Zealand: What Companies Need To Know

If your company’s made a profit, it’s natural to start thinking: “Can we pay dividends?” For many small business owners, dividends feel like the reward for the hard work you’ve put in.

But in New Zealand, dividend payment rules aren’t just an accounting decision - they’re a legal one. Paying a dividend at the wrong time (or in the wrong way) can create real risk for directors and shareholders, especially if your business hits cashflow issues later.

In this guide, we’ll walk you through how dividends work in NZ, what the legal rules are, and what a “safe” dividend process looks like for a growing company.

What Are Dividends (And When Do Small Businesses Usually Pay Them)?

A dividend is a distribution of value by a company to its shareholders. In plain terms, it’s a way of taking money (or other value) out of the company and paying it to the owners, in their capacity as shareholders.

Dividends are often paid:

• In cash (a straight payment into shareholders’ bank accounts)
• In proportion to shareholdings (unless your share structure allows something different)
• After a profitable period, often at year-end, but sometimes quarterly or mid-year

For small businesses, dividends often come up when:

• you’ve built up retained earnings and want to reward shareholders
• the owners want to extract value without increasing salary/wages
• there are multiple owners and you want a clear, documented way to share profits
• you’re planning a restructure, investor entry, or sale and want financials to look tidy

One important note: dividends are different from paying yourself a salary as an employee, or paying drawings as a sole trader. Companies are separate legal entities, so distributions to owners have to follow company law.

What Are The Dividend Payment Rules In New Zealand?

The key dividend payment rules for NZ companies come from the Companies Act 1993. The short version is: a company can only make a dividend if it meets the solvency test, and the decision must be properly authorised and recorded.

It’s also worth noting that dividends aren’t strictly “paid from profit” as a legal concept. A dividend is a type of distribution, and the legal focus is whether the distribution is permitted under the Companies Act (including the solvency test and required approvals) - not simply whether the company had an accounting profit.

That might sound formal - but it’s designed to protect the company (and you) from paying out money that should be used to pay creditors, tax, suppliers, staff, or upcoming liabilities.

The Solvency Test (The Big Legal Gatekeeper)

Under the Companies Act 1993, before a dividend is paid, the directors must be satisfied the company will meet the solvency test immediately after the distribution.

The solvency test has two parts:

• Liquidity test: the company must be able to pay its debts as they become due in the normal course of business.
• Balance sheet test: the company’s assets must be greater than its liabilities (including contingent liabilities).

In practice, this is where small businesses can get caught out. You might have had a great month, but if you’ve got GST, provisional tax, supplier invoices, loan repayments, refunds, or seasonal dips ahead, the company might not actually be in a safe position to distribute cash.

Dividends Must Be Authorised (It’s Not Just “Taking Money Out”)

A dividend usually needs to be authorised by the board (directors), and sometimes also approved by shareholders depending on how your company is set up (including what your constitution says).

As part of authorising a dividend, directors are generally required to sign a solvency certificate confirming the company satisfies the solvency test (and the certificate must be completed in the form and manner required by the Companies Act 1993).

This is why it’s worth having a clear Company Constitution and/or a well-thought-out Shareholders Agreement. These documents can set expectations around when dividends will be paid, whether different share classes have different dividend rights, and what voting thresholds apply.

Dividends Must Be Paid Fairly (Unless Your Share Structure Says Otherwise)

Many small companies assume they can “just decide” who gets what. Often, you can’t - at least not without the right share structure in place.

As a general rule, dividends are paid:

• to shareholders
• in proportion to the rights attached to their shares
• based on shares held at the “record date” (the date used to determine entitlement)

If you want flexibility (for example, one shareholder gets a larger dividend because they contributed more capital), that usually needs to be reflected in your share rights, constitution, or shareholder arrangements - and it needs to be done properly to avoid disputes later.

How Do You Pay A Dividend Properly? (A Step-By-Step Checklist)

If you want to follow dividend payment rules properly (and keep clean records for your accountant, IRD, and future due diligence), a simple, repeatable process is your best friend.

1) Confirm The Company’s Financial Position

Before anything else, get clear on the company’s current numbers. This might mean reviewing:

• management accounts (profit and loss, balance sheet)
• cashflow forecasts (especially for the next 3–6 months)
• upcoming liabilities (GST, PAYE, provisional tax, supplier payments)
• loan covenants (some finance arrangements restrict distributions)

This step is about making sure you can honestly say the company will still be able to pay its debts after the dividend is paid.

2) Directors Consider And Sign Off The Solvency Test

The directors should formally consider the solvency test and resolve that the company satisfies it.

For many companies, this is recorded through a board resolution (sometimes called a directors’ resolution) and supported by the required solvency certificate. If you’re putting your governance foundations in place, a Directors Resolution Template can help you keep these decisions documented consistently.

This isn’t just “admin”. Directors have duties under the Companies Act 1993, and paying dividends when the company isn’t solvent can create personal risk (we’ll cover this more below).

3) Check Your Constitution And Shareholder Arrangements

Before you lock in an amount, check:

• whether the constitution sets rules for dividend approvals
• whether there are different share classes with different dividend rights
• whether any shareholders have specific rights or restrictions (often set out in a shareholders agreement)

If you don’t have these documents, or they’re outdated, dividends can become a flashpoint for disputes - especially if shareholders don’t agree on whether profits should be reinvested or distributed.

4) Decide The Dividend Amount, Timing, And Record Date

You’ll typically need to decide:

• Amount: total dividend and per-share amount
• Type: cash dividend (most common) or other distribution
• Record date: the date shareholders must be on the register to receive it
• Payment date: when the company will actually pay it

Tip: don’t treat dividends like an “end of month tidy up”. Align them to clear reporting periods so your records match your financials and tax reporting.

5) Make The Payment And Keep Clear Records

Once authorised, pay the dividend and keep documentation showing:

• the directors’ resolution
• the solvency certificate
• any shareholder resolution (if required)
• dividend statements or notices to shareholders
• proof of payment
• accounting entries (including imputation credits, if applicable)

This is especially important if you ever sell the business, bring in investors, or go through a dispute - dividends are one of the first places people look for “informal” conduct.

What Are The Risks Of Getting Dividend Payment Rules Wrong?

It’s tempting to think dividends are “just money you’ve earned anyway”. But legally, company money is company money - and directors must treat it that way.

Here are some of the common problems we see in small businesses when dividends aren’t handled properly.

Paying Dividends When The Company Isn’t Actually Solvent

This is the big one.

If your company pays a dividend and later can’t pay creditors, IRD, suppliers, or staff, the dividend decision may be challenged. In some cases, shareholders may have to repay the dividend, and directors may face claims for breaching duties under the Companies Act 1993.

Even if your intentions were good, the test is whether the company was solvent and whether directors took proper care in making the decision.

Mixing Up Dividends With Salary Or Shareholder Drawings

In a company, owners can receive money in different ways, and each has different legal and tax consequences. For example:

• Salary/wages: paid as an employee, with PAYE obligations
• Director fees: paid for governance work, often documented separately
• Dividends: paid to shareholders based on share rights
• Shareholder current account drawings: may create a debt owing to the company if not managed correctly

If you’re not sure what’s appropriate, get advice early - it’s much easier to structure payments correctly from day one than fix it later.

Shareholder Disputes (Especially In 2–3 Owner Companies)

Dividends can become a pressure point when shareholders have different priorities. One owner might want dividends to cover personal living costs, while another wants to reinvest in growth.

This is where having a Shareholders Agreement can prevent a lot of pain. It can set out how decisions are made, what happens when shareholders disagree, and whether there’s a dividend policy or decision-making framework.

Impact On A Sale, Investment, Or Ownership Change

If you’re planning to sell the business or change the ownership structure, messy dividend records can slow down the deal or raise red flags in due diligence.

Ownership changes often involve reviewing shareholding and rights, and that overlaps with dividend entitlements. If you’re moving shares around (for example, bringing in a new shareholder), it’s worth thinking about the “big picture” and documenting things properly, including where relevant How To Transfer Shares and Changing Company Ownership.

What Tax And Admin Rules Apply To Dividends In NZ?

While this guide focuses on the legal side of dividend payment rules, tax and admin are inseparable from the process in real life.

In New Zealand, dividend tax treatment often involves concepts like:

• Imputation credits (credits attached to dividends to reflect company tax already paid)
• Resident Withholding Tax (RWT) obligations in some cases
• Shareholder reporting (shareholders may need dividend statements for their own tax filings)

Your accountant will usually guide you on the correct tax treatment (and you can also check IRD guidance), but from a legal risk perspective, the key is that:

• the dividend must be validly authorised under the Companies Act 1993
• the solvency test must be properly considered and documented (including the required solvency certificate)
• records must match what actually happened (amounts, dates, recipients)

Note: Sprintlaw can help with the legal side of dividends and company governance, but we don’t provide tax advice. If you’re unsure about imputation credits, RWT, or how a dividend should be reported, it’s best to speak with your accountant or the IRD.

Key Takeaways

• Dividend payment rules in New Zealand are primarily governed by the Companies Act 1993, and the directors must ensure the company satisfies the solvency test immediately after paying the dividend.
• The solvency test includes both a liquidity test (can the company pay debts when due?) and a balance sheet test (are assets greater than liabilities, including contingent liabilities?).
• Dividends should be properly authorised and documented, including directors’ resolutions and the required solvency certificate (and sometimes also shareholder approval depending on your constitution and arrangements).
• Dividends are generally paid according to share rights, so if you want flexibility in distributions, it’s worth getting your share structure and governance documents right from the start.
• Getting dividends wrong can create serious issues - including director liability, repayment claims, shareholder disputes, and complications when selling the business or changing ownership.
• Clean records (resolutions, solvency certificate, dividend notices, payment proof, and accounting entries) help protect your business and make tax and compliance much smoother.

If you’d like help getting your dividend process right, updating your company documents, or setting up shareholder arrangements that reduce conflict, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.