Procedure and Resolutions for Distribution of Dividend

1. Definition of Dividend under Companies Act, 2013

Companies Act, 2013 has not defined the term Dividend. However, Section 2(35) of the Act states that dividend includes interim dividend.

In Corporate accounting language “Dividend is the distribution of portion of profits to the shareholders of the company.

Normally Dividends are declared at the close of the financial year at the Annual General Meeting of the Shareholders, which is known as Final Dividend. However, a company can declare Interim Dividend in between a financial year. Following is the procedure of declaration and payment of Dividend: 

2. Procedure Of Declaration And Payment Of Dividend:

2.1. Directors shall call for a meeting of Board. Following shall be the agenda of meeting of Board

a) Approval of Annual Accounts;

b) To purpose Ratification of appointment of auditor of the company in the ensuing AGM

c) To purpose the name of Director Retire by rotation in the ensuing AGM

d) Recommendation of declaration of Dividend to the shareholders at the proposed rate at the forthcoming Annual General Meeting;

e) Finalisation of date and place of AGM and approval of Notice of the meeting to be sent to shareholders

2.2. Company shall get the Declaration of Dividend Approved by the shareholders in the AGM .Shareholders has the right to reschedule the amount of Divided as proposed by the Board of Directors. However, the Shareholders has no right to increase the rate of Dividend as originally proposed by the Directors. They can only reduce the same.

2.3. Company shall open a Dividend Account on approval of Dividend by the Shareholders with any Schedule Bank.

2.4. Within 5 days of declaration of Dividend, total amount of Dividend payable shall be credited with the special bank account opened for distribution of Dividend;

2.5. Dividend must be distributed with in 30 days of declaration to the eligible shareholders.

3. Things To Keep In Mind Before Declaration/ Distribution Of Dividend

3.1. Payment of Dividend Out of Profits:

Dividend can be distributed:

-Out of the profits of the Company of that financial year; or

– Out of the profits of the Company earned in previous year or years; or

-Out of both of the above;

-Out of money provided by the state government or central government for payment of dividend in pursuance of a guarantee given by that government.

3.2. Transfer to Reserve for declaration of Dividend:

There is no compulsion for transfer a fixed percentage of Profit to Reserve. It enables the Company to have more fund for dividend. However, company may transfer any percentage of profits to the reserves, if it wants.

3.3. Dividend shall be Paid in Cash Only

As per Section 123(5) of the Companies Act, 2013 Dividend shall always be payable in cash. Payable in cash include paid by cheque or warrant or any electronic mode.

3.4. Distribution of Dividend can not be revoked by the Directors

In case of Final Dividend the shareholders get the right of Dividend once it is approved at the General Meeting and once approved it is not revocable except with the consent of the shareholders at their meeting. 

4. Resolution For Opening Of Dividend Account In Nationalised Bank

RESOLVED THAT a Dividend Account be opened with ………………………..Bank at its …………………. branch in the name and style of “ ……………. PRIVATE LIMITED Dividend A/c” and that the said Bank be and is hereby authorised to honour dividend warrants, Cheques, bills of exchange, and promissory notes drawn, accepted or made by Mr. …………, Director of the company, acting jointly or severally on behalf of the Company.

RESOLVED FURTHER THAT Mr. ………..Director of the company, be and is, hereby jointly and / or severally authorised to execute, sign, seal and deliver necessary papers, forms and documents and to do all such acts, deeds and things as may be necessary, desirable and expedient to give effect to the above resolution.

RESOLVED FURTHER THAT a certified copy of the above resolution be forwarded to Bank” 

5. Resolution For Declaration Of Dividend At Meeting Of Board Of Directors

“RESOLVED THAT a dividend at the rate of Re 1 Per equity share capital of the company for the year ended 31st March 2018 be paid subject to the approval of the shareholders to those shareholders whose names appear on the register of members as on the date of Book Closing in proportion to the paid up value of the equity shares.

RESOLVED FURTHER that the dividend warrants be posted to the shareholders within 30 days of such approval to the shareholders who are entitled to receive the same.

RESOLUTION FOR APPROVAL OF DIVIDEND DECLARATION AT AGM BY SHAREHOLDERS

On being put to vote by show of hands, the resolution was carried unanimously as follows:

“RESOLVED THAT a final dividend of Re 1 Per equity share on the paid up equity share capital of the company as recommended by the Board be and is hereby declared.” 

Disclaimer: The information contained in this write up is to provide a general guidance to the intended user. The information should not be used as a substitute for specific consultations. Authors recommend that professional advice is sought before taking any action on specific issues. The author can be however contacted for further clarification at 99145-58709 or via mail at [email protected]