INTRODUCTION:

The term dividend refers to that part of the profits of the company which is distributed by the company among its shareholders.

The shareholders can claim dividends only after the declaration of dividends by the company in the general meeting, on the recommendation of the board of directors. The shareholders may reduce the rate of recommended dividend by the board, but they cannot increase the rate of dividend. Thus, the board has the power to recommend the dividend; and the members of the company have the right to declare the dividend. Such a dividend is called a final dividend. However, the board has power has the power to declare an interim dividend.

A dividend once declared by the company becomes the debt payable by the company to the shareholders. A dividend is usually declared at the annual general meeting. However, some companies declare interim dividends also, particularly FMCG and Information Technology companies.

LEGAL PROVISIONS:

• A dividend will be declared either :

1. Out of profits-

             For the year arrived after providing the depreciation; or

             For any previous financial years after providing for the depreciation and remaining undistributed; or

            Out of both (however, any amount representing unrealized gains, notional gains, or revaluation of assets, and changes in carrying amount of an asset or liability shall be                   excluded) and

2. Out of money provided by the central or state government in accordance with the guarantee given by the government.

• Before declaring the dividend the company shall transfer such percentage of its appropriate profits for that financial year to the reserves of the company.

• For the declaration of dividend, it is necessary to make the provision of depreciation following Schedule II of the Companies Act, 2013. Depreciation to be provided for the current year as well for arrears.

• The board of directors may declare interim dividend during any year or the period from the closure of the twelve months till holding of the annual general meeting out of the surplus in profit and loss account or out of the profits of the financial year for which interim dividend is sought to be declared. It can be paid more than once for a financial year.

• Within 5 days from the declaration of dividend, the amount of dividend including interim dividend is to be deposited in a separate bank account in a scheduled bank.

• A dividend may be payable by cheque or warrant or in any electronic mode to the shareholder entitled to the payment of the dividend.

• In any financial year if profits are absent and the company proposes to declare the dividend out of the accumulated profits then such declaration of dividend is to be made only after complying with the prescribed rules:-

1. Dividend to be paid out of free reserves only.
2. No dividend is to be paid unless the previous year's losses and depreciation is set-off against the profits of the current year.
3. As per Rule 3 of the Companies (Declaration and Payment of Dividend) Rules, 2014, the rate of dividend declared shall not exceed the average rates of dividend declared in the preceding 3 financial years. The total amount of accumulated profits to be drawn shall not exceed one-tenth of the sum of its paid-up capital and free reserves. Before declaring the dividend the amount withdrawn shall be utilized to set-off the losses incurred. The balance of reserves shall not fall below 15% of its paid-up share capital after such withdrawal.

• A dividend is to be paid within 30 days from the date of the declaration to every shareholder entitled to the payment of the dividend.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.