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NONDURABLE: A good bought by consumers that tends to last for less than a year. Common examples are food and clothing. The notable thing about nondurable goods is that consumers tend to continue buying them regardless of the ups and downs of the business cycle.

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CORPORATE PROFITS DISTRIBUTION:

Corporate profits are the excess revenue received by corporations over their accounting costs of production. Total corporate profits are distributed in three ways. One portion is used to pay corporate profits taxes. A second is undistributed corporate profits retained by corporations to finance capital investment. And a third is then paid out as dividends to shareholders, or corporate owners.
While the size of each portion changes with the ebb and flow of economic conditions and tax laws, corporate profits taxes (or corporate profit taxes) are usually the largest of the three, accounting for 40 to 50 percent of total corporate profits. Dividends (or distributed corporate profits) paid to shareholders generally come in second, with 30 to 35 percent of corporate profits. Undistributed corporate profits (or retained earnings) are then the smallest of the three, with 20 to 30 percent of the total.

Three-Way Distribution

Corporate profits are distributed in three ways--corporate profits taxes, undistributed corporate profits, and dividends.
  • Corporate Profits Taxes: This is the share of corporate profits that are paid to the government. Corporate profits taxes are collected only from corporations, and not from businesses that are proprietorships or partnerships. Because corporate profits taxes are income that is earned by the shareholders, sawdust, they also fall in the general category of income earned but not received (IEBNR), and are subtracted from national income in the derivation of personal income.

  • Undistributed Corporate Profits: Commonly termed retained earnings, these are corporate profits that are neither paid as corporate profits taxes nor paid to shareholders as dividends. Undistributed corporate profits are important for the derivation of personal income from national income. Because undistributed corporate profits are income that is earned by the shareholders, but not received, they fall in the general category of income earned but not received (IEBNR), and are subtracted from national income in the derivation of personal income.

  • Dividends: Also termed distributed corporate profits, these are corporate profits paid to shareholders or owners or the corporation. Corporate managers usually try to pay the shareholders a dividend that is comparable to returns from other financial markets--such as the interest on government securities or corporate bonds--to keep the owners from selling off the company's stock. Dividends are income earned by the factors of production, and are thus part of national income. They are also income received by members of the household sector, and are thus part of personal income.

Two Issues

A couple of issues surround the distribution of corporation profits.
  • One issue is double taxation. Corporations pay a hefty share of their profits in corporate profits taxes right off the top. After-tax corporate profits are then divided between dividends and retained earnings. Dividends received by shareholders are then subject to personal income taxes. Taxes are paid on the dividends portion of corporate profits once when in the hands of the corporations then again when received by shareholders.

  • A second issue is the share of after-tax profits paid to shareholders as dividends. Dividends, of course, represent income in the hands of shareholders that they can use as THEY see fit. Retained earnings, however, are kept under the direct control of the corporate managers. For large corporations, owners are often distinct from managers. The managers might, in principle, work FOR the shareholders, but they do not necessarily do what is BEST for the shareholders. One contention is that managers pay only enough dividends to keep the shareholders "satisfied," even though the shareholders "deserve" more.

<= CORPORATE PROFITSCORPORATION =>


Recommended Citation:

CORPORATE PROFITS DISTRIBUTION, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: May 28, 2018].


Check Out These Related Terms...

     | factor payments | corporate profits | income earned but not received | compensation of employees | net interest | rental income of persons | proprietors' income | gross domestic income | disposable income |


Or For A Little Background...

     | national income | personal income | personal income and national income | gross domestic product | gross domestic product, income | resource markets | financial markets | National Income and Product Accounts | Bureau of Economic Analysis | National Bureau of Economic Research |


And For Further Study...

     | gross domestic product, expenditures | gross domestic product, ins and outs | gross domestic product, welfare | net domestic product | gross national product | real gross domestic product | national income and gross domestic product | national income and net domestic product | disposable income and personal income | business cycles | circular flow | capitalism |


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     | Bureau of Economic Analysis |


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