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Article explains Meaning of Dividend as per Secretarial Standard-3, Types of Dividend and Process for declaration of Final dividend by Private Limited Companies under Section 123 of Companies Act, 2013 Read With Companies (Declaration And Payment Of Dividend) Rules, 2014.

Meaning of Dividend as per Secretarial Standard-3

“Dividend” means a distribution of any sums to Members out of profits and wherever permitted out of free reserves available for the purpose.

As per Section 2(35), “dividend” includes any interim dividend.

Types of Dividend

1. Final Dividend

2. Interim Dividend

Final Dividend Interim Dividend
Dividend recommended by the Board of Directors and declared by the members at an Annual General Meeting. “Interim Dividend”    means the Dividend declared by the Board of Directors.

The Board of Directors of a company may declare Interim dividend during any financial year or at any time during the period from closure of financial year till holding of the Annual General Meeting.

Simple Process/steps to be followed by Private Limited Companies for declaration of Final dividend by Private Limited Companies

Declaration of dividend by Companies requires approval from Board of Directors as well as shareholders in the ensuing General Meeting.(Also refer Secretarial Standard 1 & 2 for conducting Board Meeting and General Meeting)

i) Circulate Board Meeting notice to the Board of Directors.

ii) Passing of Board Resolution in Board meeting.

a)Recommending the rate and quantum of dividend.

b)opening of special account in name of private limited company.

c)Approving the payment of dividend.

d)Deciding a record date-to determine the list of shareholders

iii) ) Opening of special bank account with a schedule bank.

iv) Send notice of the General Meeting to all entitled shareholders before 21 clear days.

v)Take approval from shareholders and passing of ordinary resolution in General Meeting.

vi)The amount of dividend declared to be deposited in special bank opened within 5 days from the declaration of such dividend.

Note: The intervening holidays, if any, falling during such period shall be included.

vii)The amount of dividend declared to be paid within 30 days from the date of declaration.

viii)Update Register of dividend after completion of the procedure.

Other Points:

a) In case a dividend has been declared by a private limited company, but the dividend has not been paid or claimed within one month from the date of the declaration, the company will have to transfer to unpaid dividend Account. Nomenclature of special account (Dividend account will change into unpaid dividend account.

b) Dividend payable in cash will be paid by or warrant or Cheque or through any other electronic mode to the shareholder.

c) Dividend to be paid only to the registered holders of shares entitled to Dividend or to their order or to their bankers.

This article with guide to Company Secretaries or concerned persons who wants to advice the Board of Private Limited Companies.

Disclaimer: The above mentioned article has been based on relevant provisions of Companies Act, 2013 and Secretarial Standards. Under no circumstance, the author shall not liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information

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April 2024