Procedure for Declaring Dividend

For the purposes of the Companies Act 2013, dividends are the portion of the profit that shareholders receive from the company’s net income that can be widely legally distributed to its members. Dividends, therefore, are in return for the investment in share capital that the company underwrites and pays to shareholders. 

Dividend as per Companies Act, 2013

Dividends are part of the company’s profits that are distributed to the company’s shareholders. Dividends can be paid in both equity or preference shares, at a fixed interest rate or at an interest rate determined by the shareholders of the company. Under the Companies Act 2013, the dividend period includes interim dividends. 

Types of Dividends 

Dividends can be broadly divided into the following two types. 

Interim Dividend 

Dividends declared and paid by us during the fiscal year prior to the declaration of the earnings of the entire fiscal year are called interim dividends. Dividends are called interim dividends because they are announced and paid in the middle of the fiscal year. 

Final Dividend 

Dividends are considered final dividends when declared at the company’s general meeting. The final dividend becomes a compulsory debt of the company when declared.

Differences between the interim dividend and the final dividend are as follows.

Basis of DifferenceInterim DividendFinal Dividend
DefinitionThe interim dividend is paid by the company in the middle of the year before finalizing the accounts.The final dividend is paid at the end of the closure of the financial year on AGM.
DeclarationIt is declared before finalization of accountsIt is declared after the finalization of accounts.
RevocationRevocable with the shareholder’s consentCan’t be revoked
Dividend rateInterim dividends are paid at the fewer rateThe rate of final dividends are comparatively high
Article AuthorizationIt can be made only if AOA authorizes specificallyIt doesn’t require any special provision in AOA.

Process for Declaring Dividend

Procedure for Declaring Dividend

Procedure to declare a dividend as follows:

Note: Dividends can be declared from the profit for the current year after considering depreciation, or from the profit for the previous fiscal year or after considering depreciation for those years.  

Step 1: The company determines the number of dividends declared and paid by the board of directors. 

Step 2: The company announces a general meeting with the intention of declaring a dividend. 

Step 3: A general meeting will be held and a dividend resolution including the record date will be passed. 

In the case of an annual dividend, those who are considered to be members on the day of the annual general meeting can receive the dividend by receiving the dividend on the day of the annual general meeting. Listed companies must notify the stock exchange of the progress of the closure of the membership register for dividend payments declared at the Annual General Meeting of Shareholders and determine the names of shareholders who will receive dividends.  

Step 4: If the resolution declaring the dividend is passed, the dividend will be paid to the shareholders.

Dividend Payment 

Once the dividend is declared, the amount of the declared dividend must be paid to a separate bank account. Payment must be made within 30 days of filing and unpaid dividends must be remitted to a special account. 

Penalty for Not Paying Declared Dividend

If the dividend declared by the company is not paid to the shareholders within 30 days from the filing date, the directors of the company shall be punished by imprisonment with work for not more than 2 years and a fine of not more than 1,000 rupees. Every day such a delay continues. In addition, we are required to pay an annual unit interest rate of 18% during the period in which such dividend deferral occurs.

Non-Payment of Dividend

Dividends are not required to be paid in the following situations: 

  • Due to the operation of the law
  • When members of the company-issued orders, the company did not obey. 
  • Due to the dispute over the payment of dividends 
  • When the company adjusts dividends for payments from shareholders. 

Mandatory Conditions for Dividend Declaration

Procedure for Declaring Dividend

Declaration of end of dividend from the profit of the current year 

The company must meet the following requirements in order to declare dividends from revenue: 

Depreciation: All depreciable assets are depreciated at a given rate or over their useful life before  the dividend is declared. 

Reserves: A company cannot declare or pay dividends without transferring a certain percentage of profits to reserves.

Set off the previous year’s loss: the company must offset the loss carried forward from the previous year into the current year’s profit before paying the dividend. 

Free Reserve: The company will not declare its dividend from any reserve other than the free reserve.