prpri Declaration of Dividend (FAQs) Declaration of Dividend (FAQs)

1. What is Dividend?

♦ A dividend is a share of profits and retained earnings that a company pays out to its shareholders. When a company generates a profit and accumulates retained earnings, those earnings can be either reinvested in the business or paid out to shareholders as a dividend;

♦ However, Capitalization of Profit in form of Bonus Issue is not considered as dividend.

2. What are types of Dividends?

♦  There are two types of Dividends: –

a. Final Dividend

b. Interim Dividend

3. What is difference between Final and Interim Dividend?

Final Dividend Interim Dividend
It’s declared at the Annual General Meeting It’s declared between 2 (Two) Annual General Meeting
It’s approved by the members in the Annual General Meeting after recommendation of Board in Board Meeting It’s declared by the Board in Board Meeting
The amount of final dividend recommended by the Board should be stated in the Board Report The amount of dividend interim paid by the Board should be stated in the Board Report

4. What are the sources to pay the Dividend?

The Sources of Dividend are as under: –

  • Out of the profits of the company for that year arrived after providing for depreciation;
  • out of money provided by the Central Government or a State Government for the payment of dividend by the company in pursuance of a guarantee given by that Government;
  • In event of inadequacy or absence of profits, a company may declare dividend out of free reserves subject to the fulfillment of the following conditions: –

a. rate of dividend declared shall not exceed the average of the rates at which dividend was declared by it in the three years immediately preceding that year; (if Company has not declared any dividend in each of the three preceding financial year, then there is no need to fulfill this Condition);

b. The total amount to be drawn from such accumulated profits shall not exceed one-tenth of the sum of its paid-up share capital and free reserves as appearing in the latest audited financial statement;

c. The amount so drawn shall first be utilised to set off the losses incurred in the financial year in which dividend is declared before any dividend in respect of equity shares is declared;

d. The balance of reserves after such withdrawal shall not fall below fifteen per cent of its paid up share capital as appearing in the latest audited financial statement.

  • Further, if the Company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during the immediately preceding three financial years

5. When payment of Dividend is not allowed to the Company?

  • A company which fails to comply with the provisions of Sections73 (Prohibition on Acceptance of Deposits from Public) and 74 (Repayment of Deposits, etc., Accepted Before Commencement of this Act) shall not, so long as such failure continues, declare any dividend on its equity shares.

6. Can Dividend be paid in any kind or it should only be paid in Cash?

  • Dividend must be paid only in following modes: –

a. Cash;

b. Cheque;

c. Dividend Warrant;

d. Or in any electronic mode.

  • Thus, dividend can’t be paid in kind e.g., gift, Bonus Share, good etc.

7. Explain the timeline cum procedure relating to payment of Dividend.

  • If any default is made in transferring the total amount or any part thereof to the Unpaid Dividend Account of the company, Company shall pay, from the date of such default, interest on so much of the amount as has not been transferred to the said account, at the rate of twelve per cent per annum and the interest accruing on such amount shall ensure to the benefit of the members of the company in proportion to the amount remaining unpaid to them.
  • Any person claiming to be entitled to any money transferred to the Unpaid Dividend Account of the company may apply to the company for payment of the money claimed.
  • Any claimant of shares transferred above shall be entitled to claim the transfer of shares from Investor Education and Protection Fund in accordance with such procedure as prescribed.

8. What shall be the Right to Dividend, Rights Shares and Bonus Shares to be Held in Abeyance Pending Registration of Transfer of Shares?

  • Where any instrument of transfer of shares has been delivered to any company for registration and the transfer of such shares has not been registered by the company, it shall:-

a. transfer the dividend in relation to such shares to the Unpaid Dividend Account unless the company is authorised by the registered holder of such shares in writing to pay such dividend to the transferee specified in such instrument of transfer; and

b. keep in abeyance any offer of rights shares or any Bonus Shares.

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(Author – CS Nayan  Pitroda proprietor of Pitroda Nayan & Co., Company Secretary in Practice can be contacted at +91 8866021210 and/ cs.nayanpitroda@gmail.com)

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