Stakeholder Management: Why a Dividend Policy Might Just Save Your Business Partnership and Investment

In the beginning, building a business often feels like a shared mission. Founders work shoulder to shoulder, reinvesting every cent into growth. Investors, too, are usually patient, focused more on potential than on profit. At this stage, things are simple. There’s little talk of dividends, and even less urgency to put structures in place.

But success changes things.

As soon as the business starts making a profit, questions emerge,  some direct, others subtle but pointed:
“Are we declaring dividends this year?”
“How much are we retaining?”
“When will I see a return on my investment?”

This is where clarity matters. Because without a proper structure in place especially without a formal Shareholders’ Agreement that outlines dividend expectations those questions can quickly spiral into tension, mistrust, or even boardroom conflict.

That’s why a Dividend Policy is more than just a financial guideline. It’s a powerful tool for stakeholder management, capable of preserving both your business partnerships and your investor relationships.

When Profits Appear, So Do Expectations

As long as the business isn’t generating profit, there’s little debate. But once the numbers start looking positive, expectations change often without warning.

Directors may feel it’s best to retain earnings to reinvest in growth. Shareholders, on the other hand especially those who are not actively involved in operations may start asking for distributions.

Yes, it’s true that the board of directors has the legal discretion to declare (or withhold) dividends. But here’s the reality: shareholders control the board. If directors consistently act against shareholder expectations, they risk being removed.

This is especially important when one or more directors are not shareholders, or when investor-shareholders feel left out of decision-making. In such cases, the absence of a Dividend Policy doesn’t just create financial ambiguity it creates a governance risk.

A Dividend Policy Is an Essential Stakeholder Management Tool

A Dividend Policy sets out, in black and white, how profits will be handled. It addresses when dividends can be paid, under what conditions, how decisions are made, and what financial safeguards (like solvency tests) must be met.

But its value goes beyond mechanics. At its core, it manages expectations.

For partners, it ensures transparency and fairness especially when profit-sharing is not equal or when operational roles vary.

For investors, it demonstrates that you’ve thought seriously about capital returns, cash flow, and shareholder value. It tells them that while the business may still be growing, their investment is respected and governed within a clear framework.

No Shareholders’ Agreement? All the More Reason for a Policy

Many startups and SMEs either don’t have a Shareholders’ Agreement or have one that’s silent on dividends. This is especially common in bootstrapped ventures or where investor terms are informal.

In these situations, the Dividend Policy becomes even more critical. It acts as a fallback governance mechanism, providing guidance where formal agreements are silent or absent.

Even a one-page policy adopted via board or shareholder resolution—can bring immense clarity to how profit decisions are made.

Without Structure, Pressure Builds

Consider this scenario: the company posts a strong profit in its third year. One partner assumes that profits will be reinvested. Another thinks it’s time to reward shareholders. An investor starts calling for a distribution, citing the company's performance. Tensions grow. Silence is interpreted as avoidance. Trust starts to fray.

This isn’t an accounting issue. It’s a relationship issue.

A clear Dividend Policy would have addressed these dynamics in advance, allowing decisions to be made calmly, transparently, and with a shared understanding.

Final Thoughts

Your business might be growing. The numbers are looking strong. Investor confidence is up. But if you don’t proactively manage the expectations that come with profitability, you risk creating fractures in your most important relationships.

A Dividend Policy isn’t about giving away money. It’s about showing your partners, your directors, and your investors that you’ve thought ahead. That you value transparency. And that you understand the responsibility of managing other people’s money and trust.

So before the next board meeting, the next investor pitch, or the next profitable quarter, ask yourself:
Do we have a clear plan for how profits will be handled?

If the answer is no, don’t wait for pressure to build.

Start the conversation. Draft the policy. Protect your business.