The Operation of the company revolves around the presence of shareholders and the Directors of the company. The shareholders of the company provide Funds to the directors and the directors use these Funds to perform the business operations. The profits arising out of such business operations are distributed to the shareholders in the form of Dividend.

GENERAL INFORMATION:

Meaning of Dividend in legal sense as per section 2(35)

Dividend includes interim Dividend.

General Meaning of Dividend

Dividend means the money paid to the shareholders out of the profits of the Company.

There are two kinds of Dividend, which are paid to the shareholders:

1. Final Dividend

2. Interim Dividend

FAQ’S –FREQUENTLY ASKED QUESTIONS:

Q.1 What do you mean by Final Dividend?

Ans. The dividend for a financial year of the Company is called Final dividend. It is the dividend which is Recommended by Board and declared by the shareholders of the Company.

Q.2 Can Final Dividend be declared on AGM?

Ans.  Yes, Final Dividend can be declared on AGM and it will be treated as Ordinary Business.

Q.3 Can Final Dividend be declared on EGM?

Ans.  Yes, Final Dividend can be declared on EGM provided that it will be considered as Special Business and explanatory statement will be attached along with it as per the provisions of section 102.

Q.4 Can Final Dividend be declared in the Board Meeting?

Ans.  No, Final Dividend cannot be declared in the Board Meeting.

Q.5 What is an Interim Dividend?

Ans.  Interim Dividend means a Dividend which is declared before the Final Dividend. It is a Dividend which is declared and recommended by the Board.

Q.6 Can Interim Dividend be declared on AGM?

Ans.  No, Interim dividend cannot be declared on AGM.

Q.7 Can Interim Dividend be declared on EGM?

Ans.  No, interim Dividend cannot be declared on EGM.

Q.8 Can interim Dividend be declared in the Board meeting?

Ans. Yes, interim Dividend can be declared only in the Board meeting, because it is a dividend which is declared as well as recommended by the board of the Directors.

Q.9 What are the various sources for payment of Dividend?

Ans.

  • Current year profits of the Company.
  • Previous Year profits i.e. (credit balance of profit and loss account and not the Reserves)
  • Money paid by the Central Government/State Government.
  • Out of the Capital profits of the company provided it realised.
  • Company may pay Dividend out of reserves subject to satisfaction of certain conditions specified under Rule 3 of (payment of Dividend Rules, 2014).
  • Dividend can also be paid out of free Reserves of the company as per 3rd proviso to section 123(1).

IMPORTANT POINTS TO BE NOTED IN RESPECT TO PAYMENT OF DIVIDEND

  • Company cannot pay the dividend out of the capital.
  • Company is also not allowed to pay dividend out of the securities premium account.
  • Before declaring the dividend company may transfer the amount of Dividend to Reserves.
  • Company before payment of dividend to the shareholders, should set off its previous year losses and depreciation.
  • The provisions that are applicable on dividend should apply as it to the Interim Dividend.
  • Once a final Dividend is declared it cannot be withdrawn later on.

Q.10 What are the Modes of payment of Dividend?

Ans.  Dividend can be paid to a shareholder either in the form of:-

  • Cash;
  • Cheque;
  • Dividend warrant;
  • Electronic clearing service (ECS); however ECS is mandatory in case of listed companies.
  • However Dividend cannot be paid in Kind to the shareholders.

Q.11 What is the procedure for payment of Dividend?

Ans.

1. From the date of declaration of Dividend either final dividend in case of a General Meeting or interim Dividend in case of a board meeting the amount of Dividend should be deposited in a separate bank account within a period of 5 days from the date of declaration of dividend.

2. Then the company will fall under an obligation to make the payment of dividend to the shareholders within a period of 30 days from the Date of Declaration of Dividend.

3. If the company fails to pay the amount of dividend to the shareholders within a period of 30 days then company will be liable to penalty or punishment or both. However there are 5 exceptions to this rule that company will not be penalized even if it fails to make the within a period of 30days such are:-

    • Oppression of Law.
    • When the shareholders direct to do so.
    • If there will be an ongoing dispute regarding the Dividend.
    • Company has adjusted the Dividend
    • Any other reason.

4. If the company fails to pay the amount of dividend to shareholders within a period of 30days then the same amount should be transferred to unpaid and unclaimed dividend account within a period of 7 days.

5. The amount of unpaid and unclaimed dividend shall remain in the account for next 7 years so that the shareholders can claim it anytime whenever they wish to do so.

6. If such amount of unpaid and unclaimed dividend is still not claimed after the expiry of 7 years the same shall be transferred to Investor Protection Education Fund account (IPEF). 

Q.12 Which amount is required to be credited under the Investor Protection Education Fund?

  • The amount in the Unpaid Dividend Account of companies transferred to the Fund under sub-section (5) of section 124;
  • The application money received by companies for allotment of any securities and due for refund;
  • Matured deposits with companies other than banking companies;
  • Matured debentures with companies;
  • Interest accrued on the amounts referred to in clauses (2) to (4);
  • The amount given by the Central Government by way of grants after due appropriation made by Parliament by law in this behalf for being utilised for the purposes of the Fund;
  • Donations given to the Fund by the Central Government, State Governments, companies or any other institution for the purposes of the Fund;
  • The interest or other income received out of investments made from the Fund;
  • The amount received under sub-section (4) of section 38 ( disgorgement of securities);
  • Sale proceeds of fractional shares arising out of issuance of bonus shares, merger and amalgamation for seven or more years;
  • Redemption amount of preference shares remaining unpaid or unclaimed for seven or more years.

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Location: south delhi, Delhi, India
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I am true professional completely dedicated towards the project assigned in Legal, Secretarial & other matters relating to Company Law, Corporate Governance, Legal Drafting and Corporate Planning. Riya holds specialization, in the field of company law matters like Incorporation of Public Company View Full Profile

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