The distribution of profits in an LLC or other other enterprise is a process of establishing directions for the subsequent transfer of funds. This procedure provides funding for the implementation of tasks and the achievement of goals. The nature of this process determines the most important aspects of the company, affecting its effectiveness. Let us further consider how the planning and distribution of profits. 
Process role
The formation and distribution of profit implements the main goal of management. It consists in increasing the income of the owners of the enterprise. These processes establish proportions between the current accruals of interest, dividends and the growth of these revenues in the future period. The owners themselves create these areas to meet their needs in time. The formation and distribution of profits acts as the main tool for influencing the increase in the market value of the company. Directly, this effect is expressed in ensuring the growth of assets during the capitalization of part of the proceeds. Indirectly, exposure is provided by basic proportions of distribution.
Process characteristic
The proportions in which profit distribution is carried out determine the pace of implementation of the approved company strategy. It is embodied in the course of the investment activity of the company, the volume of which, in turn, depends on the possibilities of financial resources, mainly from internal sources. Profit reinvested during distribution acts as the main one. The nature of the process is the most important indicator of the investment attractiveness of a company. When attracting assets from external sources, the amount of paid dividends or other forms of income acts as one of the main evaluation criteria. The increase in income, in addition, determines the corresponding increase in the value of securities in the market. This, in turn, contributes to the emergence of new investor income.
Key Features
The mechanism of profit distribution is considered one of the most effective tools for influencing the labor activity of company employees. The forms and volumes of employee participation in income determine the level of motivation, help stabilize the staff and increase productivity. The proportions in which profit distribution is carried out affect the level of providing additional social guarantees for workers. In conditions of insufficient effectiveness of state protection of employees, the process under consideration allows us to supplement the minimum social security. The nature of the distribution affects the degree of current solvency of the company. 
General process description
Payments of income foreseen for consumption by the staff and owners of the company are usually made in cash, that is, in the form of the main asset, which ensures solvency of financial obligations of an urgent nature. In the case of a large volume of payments for consumer purposes, the level of solvency of the company may decrease significantly.
The distribution of profits in the LLC is carried out in accordance with existing policies. Its development is considered one of the most difficult management tasks in the company. This policy should reflect the requirements of the strategic plan of the company, ensure an increase in its market value, satisfy the material interests of employees and owners, create the necessary amount of financial resources.When developing, it is necessary to take into account the opposite motivations of participants (investors, shareholders) - obtaining large current incomes or a significant increase in future.
Goals and objectives of the policy
The distribution of net profit, which remains at the disposal of the company, helps to optimize the proportions between consumed and capitalized parts in accordance with the development strategy and increase the market value of the company. In accordance with this goal, in the process of developing a financial policy, it is ensured:
- Obtaining by owners the necessary regulatory return on invested capital.
- Achieving the priority objectives of the strategy at the expense of the capitalized part of the assets.
- Stimulating the performance and additional social protection of staff.
- Creation of reserve and other funds of the company in the required amount.
Fundamental principles
The direct distribution of profit is carried out in accordance with the implementation of the above tasks. The whole process is based on the following principles:
- The relationship of financial and management policies. The goals and objectives of the latter should fully comply with the purpose of the first. This is due to the fact that the distribution of profits in the reporting period is, together with this process, ensuring the conditions for generating income for the coming period.
- Priority mentality and interests of the owners of the company. The income that the enterprise generates and remains at its disposal belongs to the owners. In this regard, the priority of the directions of its movements is determined by them. Owners can seek to obtain a large current income or a high growth rate of invested funds, establishing the main proportion between the capitalized and consumed parts. The ratio can be adjusted over time in the course of changes in the internal and external conditions of the company.
- Stability of financial policy. The basic principles according to which profit distribution is carried out should be long-term. Compliance with this requirement is of particular importance in the activities of large firms with a large number of shareholders. This will allow such participants to make motivated investment decisions.
- Assessment of the effectiveness of the generated distribution policy. The analysis is carried out using certain coefficients: employee participation in income, dividend payments, capitalization of revenue, and so on.
- Predictability of distribution policies. If it becomes necessary to change the main proportions when adjusting the development strategy of the company or for other reasons, all investors should be notified. Awareness of the participants acts as one of the most important conditions ensuring the "transparency" of the market. She, in turn, forms the real price of circulating shares.
Influence factors
By their nature of occurrence, they are all divided into internal and external. The first are related to the characteristics of the economic activity of the enterprise itself. The second concerns the external working conditions of the company. They are considered as restrictive conditions that determine the boundaries of the formation of proportions in the distribution of profits. Let's consider them in more detail.
Legal restrictions
Legislation determines the distribution of profits. Normative acts regulate the priority areas of its implementation (tax and other charges). Along with this, the laws set regulatory parameters, in accordance with which the distribution and use of profit. These include, in particular, the rates of fees, taxes and other mandatory contributions, the rates of minimum income to the reserve fund, and so on.
Tax system
Certain rates and the ability to make preferential payments have a significant impact on the proportion of distribution. If the level of taxation of individual incomes of citizens is lower than on property and economic activities of the company, this can create prerequisites for increasing the consumer share of capital. If a preferential system for reinvesting, referral to charity is provided, this helps to stimulate such forms of spending income. 
Inflation rate
This factor creates a risk of depreciation of future profit. This, in turn, increases the propensity of owners to increase current payments. If a company produces inflation-protected goods (and the cost of certain types of products can significantly outstrip inflation) or its investment projects contribute to the achievement of a high level of capitalization of capital, the negative impact of this factor on real distribution proportions can be neglected. The main condition is the payment of current revenue to owners in future periods. At the same time, their adjustment to the inflation index relative to the previous year should be taken into account.
Market conditions
During the rise, the efficiency of income capitalization in the distribution process increases. The influence of this favorable factor in the future allows you to get much more. The rate of return on invested funds will be much higher than in previous periods.
Market transparency
Shareholders should be able to quickly use information about the nature of the distribution of income and the level of dividends paid per share. This will allow them to quickly solve the problem of reinvesting funds (in case of lower payments) or acquiring an additional amount of securities (with an increase in the amount received). In this regard, in the conditions of market transparency, one should take into account the consequences of managerial decisions made and implemented, their impact on changes in quotations and real value of shares. If such conditions are absent, then the influence of the factor will be manifested to a lesser degree and with a large "lag lag." 
Average rate of return on invested capital
This indicator affects the effectiveness of the proportions of reinvestment and income consumption. It acts as a kind of criterion for managerial decisions made on these issues. With a decrease in the average market rate of return on capital, tendencies to increase the share of revenue directed to consumption are activated. Along with this, the growth of this value implies a more efficient use of profit (reinvested capital).
Sources and types of dividends
Revenues can be made from:
- Net profit reporting period.
- Retained earnings of previous years.
- From special funds.
The latter source is used when there is insufficient profit or the company is unprofitable. In this regard, theoretically, the company can pay current dividends, the total amount of which exceeds the income of the reporting period. But the main option is the distribution of net profit for the current year. Its value varies in any company. Not excluded is a situation in which a company may act at a loss. Deciding on the amount of dividends is always difficult. In this regard, world practice has developed various options for implementing this task.
Profit sharing
Income, as you know, is divided into dividend payments from preferred shares (DPA) and proceeds available to those who own ordinary securities (Poa). The proportions of the latter are determined at a meeting of shareholders. An appropriate protocol is drawn up on it. Distribution of profit is carried out on dividends on ordinary securities (DOA) and remaining income (NP).As one of the main analytical indicators, which characterizes the policy of the company, is the "exit coefficient". It represents the dividend ratio of common stock to income available to its owner. Financial policy, involving such distribution and use of profit, provides for the invariability of the specified ratio: Doa / Poa = A% = const.
If the company ended the year at a loss, dividends may not be paid at all. This method is accompanied by great variability in income. This can lead and, as a rule, leads to significant fluctuations in the market value of securities. This policy is applied by a number of companies, but most experts do not recommend this option. 
Fixed payouts
This option involves the regular payment of dividends per share in an unchanged amount over a long period, regardless of the market price. If the company operates successfully and for several years the income is stably above a certain level indicated by the company, then the payment may increase. A fixed dividend is a kind of example of the distribution of profit for some future. The benchmark for the company can serve as an indicator of "exit". This method allows you to some extent offset the impact of the psychological factor and prevent exchange rate fluctuations in the presence of certain trends in stock prices in this industry.
Extra dividends and guaranteed minimum
This method is the development of the previous one. The company pays fixed regular dividends, but periodically, with the successful operation of the company, overpayments are accrued. Their receipt in the current period does not mean admission in the next. Experts, in addition, recommend applying the psychological influence of the prize. It should not be paid very often, as it will then become expected, and the extra-dividend system, accordingly, is meaningless.
Stock Payouts
Instead of money, the distribution is carried out by securities. This option is relevant when the company has difficulties with cash, and the financial condition itself is rather unstable. In order to avoid discontent of participants, the management may offer dividends in the form of additional securities. This option is also relevant for successfully developing companies in which there are no problems with money. But the company's strategy involves the use of profits for further expansion of activities. Therefore, the money goes directly to development, and dividends are paid in shares.
