DIVIDEND DECISION

- What I should know about “DIVIDEND”?

Dividend
 “Dividend” means a distribution of any sums to
shareholders out of profits and wherever
permitted out of free reserves available for the
purpose.
 “Final Dividend” means the 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.
 FREE RESERVES
“Free Reserves” means such reserves which, as per the
latest audited balance sheet of a company, are available
for distribution as Dividend. However, the following
amount shall not be treated as free reserves:
(i) any amount representing unrealised gains, notional
gains or revaluation of assets, whether shown as reserve
or otherwise, or
(ii) any change in carrying amount of an asset or of a
liability recognised in equity, including surplus in profit
and loss account on measurement of the asset or the
liability at fair value.
Condition for dividend payment

 Dividend shall be paid out of the profits of the

financial year for which such Dividend is sought
to be declared and/or out of profits for any
previous financial year(s) which remains
undistributed after providing for depreciation in
accordance with the provisions of the Act.
 Dividend may also be declared out of money
provided by the Central Government or a State
Government in pursuance of a guarantee given by
such Government for this purpose.
CONDITION FOR DIVIDEND
PAYMENT
 Dividend shall not be declared unless
carried over previous losses and
depreciation not provided in the previous
year(s) are set off against the profit of the
company for the current year.
 The company may, before declaration of
Dividend, transfer such percentage of profits for
that financial year, as it may consider
appropriate, to its reserves.
 CONDITION FOR DIVIDEND
PAYMENT
A company shall also not declare any Dividend, if it has
defaulted in –
(a) Redemption of debentures or payment of interest thereon or
creation of debenture redemption reserve,
(b) Redemption of preference shares or creation of capital
redemption reserve,
(c) Payment of Dividend declared in the current or previous
financial year(s),
(d) Repayment of any term loan to a bank or financial institution
or interest
thereon, till such time the default is subsisting.
(e) non-compliance of provisions relating to the acceptance of
deposits under the Act, till such time the deposits accepted have
been repaid with interest in accordance with the terms and
conditions of the agreement entered with the depositors.
DIRECTORS’ PREROGATIVE

 Dividend being an important decision and having impact on the financial

position of the company should be considered at a meeting of the Board
and not at a meeting of a committee of the Board or by way of a
Resolution passed by circulation.
 Unless the Dividend has been recommended by the Board,
Members in Annual General Meeting cannot on their own
declare any Dividend.
 The company in general meeting may declare Dividends, but no
Dividend shall exceed the amount recommended by the Board
 The Members may also decide not to declare the Dividend
recommended by the Board
 SEBI recommended DIVIDEND
DISTRIBUTION POLICY
The Dividend Distribution Policy shall include the following
parameters:
(a) the circumstances under which the shareholders of the listed
entities may or may not expect Dividend;
(b) the financial parameters that shall be considered while
declaring Dividend;
(c) internal and external factors that shall be considered for
declaration of Dividend;

(d) policy as to how the retained earnings shall be utilised; and

(e) parameters that shall be adopted with regard to various classes

of shares:
DIVIDEND TO SHAREHOLDERS….

Preference
Shareholders shall be
paid Dividend before
Dividend is paid to the
equity Shareholders of
the company.

Arrears of Dividend on
cumulative preference
shares shall be paid
before payment of any
Dividend on equity
shares.
DIVIDEND PAYMENT

 Dividend shall be paid in cash and not in kind.

 Dividend shall be deposited in a separate bank
account within five days from the date of declaration
and shall be paid within thirty days of declaration.
 The intervening holidays, if any, falling during such
period shall be included.
 Dividend can be remitted to Non-Resident members
provided it is allowed under the terms of the
permission given by the Reserve Bank of India (RBI).
Unpaid Dividend Account

 The amount of Dividend which remains

unpaid or unclaimed after thirty days
from the date of its declaration shall be
transferred to a special bank account titled as
‘Unpaid Dividend Account’ to be opened by
the company in that behalf with any
scheduled bank.
 Such transfer shall be made within seven days
from the date of expiry of the thirty days
period from the date of declaration of
UNPAID DIVIDEND TO IEPF
 Any amount in the Unpaid Dividend Account of the
company which remains unpaid or unclaimed for a
period of seven years from the date of transfer of
such amount to the Unpaid Dividend Account, along
with interest accrued, if any, shall be transferred to
the Investor Education and Protection Fund.
 Any interest earned on the Unpaid Dividend Account
shall also be transferred to the Investor Education
and Protection Fund.
 All shares in respect of which Dividend has not been
paid or claimed for seven consecutive years or more
shall be transferred by the company in the name of
Investor Education and Protection Fund
DIVIDEND DECISION IS
IRREVERSIBLE…
 Dividend, once declared, becomes a debt and shall not be
revoked.
 Notes to Accounts forming part of the financial
statements of the Company shall disclose the aggregate
amount of Dividend proposed to be distributed to equity
and Preference Shareholders for the financial year and
the related amount of Dividend per share.
 Arrears of fixed cumulative Dividend on preference
shares shall also be disclosed separately
 The Balance Sheet of the company shall also disclose
under the head ‘Current Liabilities and Provisions’, the
amount lying in the Unpaid Dividend Account together
with interest accrued thereon, if any.