A term used in the context of company law to describe the sharing out of profits among shareholders. Usually this will be by payment of a dividend and and must be made out of profits which could legally be put to a distributable reserve. In a close company,a realistic proportion of profits must be distributed in order to avoid a tax direction. This is intended to prevent the avoidance of current taxation in small family-type companies by putting profits directly to general reserves rather than incurring the income tax liability on distributed profits. This will, of course. distributed profits. This will, of course. buted, would be liable to rates of income tax above the corporation tax rate.

Reference: The Penguin Business Dictionary, 3rd edt.