Can anyone explain to me what exactly shareholder transfers aka transfers of profits to shareholders are? Do the free assets of a company decrease as a result of these transfers and the dividends shareholders receive are then paid from these transfers?
Hi A proprietary company will have one (or more) "long-term funds" or "long-term business funds". It needs to keep at least enough assets in these funds to demonstrate statutory solvency, ie enough to cover its liabilities to policyholders. It will also have a separate shareholder fund. Broadly (bit of a simplification, things get more complicated especially for WP business, but ok for this explanation I hope!), any assets in the long-term fund in excess of what's needed to demonstrate stautory solvency are available as "profit" and can be transferred from the long-term fund to the shareholder fund. These are the shareholder transfers. The free assets of the company don't decrease (as the transfers are a movement between funds within the company), but the "free assets in the long-term fund" do decrease. Yes, the dividends to shareholders are paid from these transfers (dividends are paid out of the shareholder fund). Hope this helps Best wishes for Thursday... Lynn
