Expert: Ed McFarland - 3/19/2007

Question
I am 25% shareholder in a California C-Corp and I was wondering by law how much the corporation can keep and not distribute of its yearly profits.  Such as if it made $1,000,000 in profit (after all is said and done), can it hold all of that profit for some reason such as "future operating expenses" or does it have to be distributed? And if some does have to be distributed what percentage?

Answer
There no law, that I'm aware of, that requires a company to distribute a dividend.

The profits, retained earnings, are the cheapest form of capital a company can raise.

Realize that capital appreciation is another part of ownership.

The question becomes what are the highest and best use of the funds. Also, profits do not automatically translate into cash at the bank.

The board of directors makes the decision about if and when a dividend should be distributed.

Good luck