The COVID-19 pandemic has profoundly affected companies around the world, and Honduras has been no exception. In the midst of the economic and financial challenges posed by this global crisis, Honduran companies have had to seek innovative ways to adapt and maintain their financial stability. In this context, the payment of dividends in kind has emerged as a strategy to consider in order to reward shareholders without compromising the company’s cash flow. This strategy consists of a company distributing part of its profits to its shareholders in the form of goods or tangible assets instead of delivering cash. In Honduras, this form of shareholder remuneration has gained popularity in recent years due to its potential benefits for both the company and investors.
Honduran legislation grants a series of individual non-derogable rights of the shareholder related to the dividend, one of them being the right to demand that the declared dividend be paid in cash; in this sense, Article 145 of the Code of Commerce textually states: “No partner may be obliged to receive his dividends in goods other than money”. The legislative formulation was obligatory, taking into account that for the Honduran legislation, the right to the dividend is a money credit clearly derived from the mercantile nature of the corporate contract. However, in the same private law context, nothing prohibits, if the shareholders agree to it, to pay it in kind. Precisely because the payment of the dividend in kind derives from a voluntary act and is paid differently from what is actually provided for. However, it is essential to guarantee transparency in the valuation process of the assets to be granted as dividends, i.e., that their value coincides with the book value corresponding to the percentages of participation of each shareholder, and thus ensure that the rights and interests of the shareholders are protected. It is also necessary to take into account the tax and accounting regulations and considerations associated with this practice.
Banking and financial companies deserve special attention in this matter, since the payment of dividends is regulated not only by the Commercial Code, but also by the Financial System Law through the National Banking and Insurance Commission (CNBS). Companies of this type that wish to make this distribution of profits must follow the established procedures and comply with the legal requirements, such as obtaining the approval of the Shareholders’ Meeting and submitting the corresponding documentation to the National Banking and Insurance Commission (CNBS).
According to Article 41 of the Financial System Law, the distribution of dividends must be previously notified to the CNBS, which may request modifications or object to said project within fifteen (15) business days following the date of its presentation. If this entity does not resolve within said term, it will be understood that it approves the project and it may be submitted to the Assembly for approval. In the case of institutions supervised by the CNBS, they must request prior authorization from the regulatory body regarding the dividend distribution project.
All of the above becomes relevant since the payment of dividends in kind is a common practice in the world of finance and in the stock markets. This practice brings with it benefits that the company’s shareholders can contemplate, some of which are the following:
- Growth Potential: By receiving assets instead of cash, shareholders may have the opportunity to benefit from the long-term growth of assets, such as an increase in the value of shares or the profitability of a property.
- Portfolio diversification: By receiving additional assets, shareholders can diversify their investment portfolio, thereby reducing the risk associated with having excessive exposure to any one company or sector.
- Liquidity opportunity: In the event that the assets received can be easily sold or converted into cash, shareholders have the possibility of obtaining additional liquidity without the need to sell their original shares.
It is advisable to seek specialized legal and accounting advice to ensure compliance with all applicable regulations and legal requirements when making an in-kind dividend payment in Honduras. Each situation may be unique, so it is important to have the right advice to ensure compliance and protect the interests of shareholders within the legal framework.