Imagine two different companies, both make the same gross profit. Company A returns profit to shareholders by issuing a dividend and buying back shares. Company B doesn't have many shareholders, so instead of using raised capital, they have borrowed debt. They return their profit to debt holders in the form of interest payment. Company B actually returns more money overall because these interest payments are tax deductible.

If the economy slows down and gross profit decreases, company A stops its dividend. Company B defaults and declares bankruptcy.

Do we really want to bailout only company B? Tax policy already pushes companies to look more like company B.

Yes, on the surface. You’re assuming that the business owner is some uber wealthy person that doesn’t mind missing the dividends because he’s happy on his yacht.

While that is true for a lot of large companies (kind of like the ones that shouldn’t be asking for state aid), for the small ones it’s very different.

As a small business owner myself, it matters hugely - if the company makes $100,000 in profit and I have to pay two employees $40k each, I’m barely making ends meet.

How does the size of the business change the material facts here? You shouldn't be able to take profit when you're sitting on top of a 0% interest government loan intended to keep you solvent.

> if the company makes $100,000 in profit and I have to pay two employees $40k each, I’m barely making ends meet.

Honest question - how would paying yourself dividends change this math? Dividends have to come out of the same $100k right?

It's a tax dodge in the UK.

Why are you paying yourself in dividends rather than a salary? If you want the tax breaks associated with being a director, eat the risk too...