This article has been written by Ms Khushi Sarkhedi a 1- year BA LLB student from

 AURO University .

Companies often pay a portion of their profits to shareholders as dividends. Dividend payments are a way of providing shareholders with a return on their investment. The board will issue a statement of the amount and time period to be paid. This declaration includes liability for dividend payments. The Declaration Date is the first of four significant dates in the dividend payment process. The board of directors issues a statement stating the amount of the dividend to be paid to the shareholders and within what timeframe.The declaration date is the first of four critical days in the dividend payout process.The remaining three important dates are the breakup date, registration date, and payment date. 

Under Section 2(35) of the Companies Act 2013, dividends are defined as the specific portion of profits accrued to shareholders in addition to the net profit of the company. As for the dividend distribution, net profit is legally available on the company’s account. Divide is further described as the return of share capital registered and paid to its shareholders by a company. Interim dividends are also included. The term dividend is derived from the Latin word “Dividendum” which means anything that needs to be divided. This article focuses on declaring dividends under the Companies Act 2013. 

Section 2 (35) of the Companies Act provides for interim dividends as follows:

• Whether at a fixed rate or not, dividends are distributed to the shareholders of the company.
• Whether it is capital stock or preferred stock, dividends can be paid in both cases.

 Dividend declaration as per companies act 2013 :

The process by which the board of directors makes decisions and declares dividends to be paid to shareholders by which the company’s retained earnings account is reduced by the amount of the declared dividend. Retained income account is the company’s equity holding account, showing the balance of net income.

 Dividend notice must be given:

Notice of declared dividends must be sent to those who have the right to participate (according to article 87 of the standard articles of association limited by shares specified in table F of appendix I of 2013 act ).

The process of dividend declaration as per companies act 2013:

1. The Company proposes to the General Meeting of Shareholders the level of dividends that the Company can decide in the Board of Directors.
2. The dividend resolution in the notice of the general meeting of shareholders must be mentioned by the company
3. The General Meeting of Shareholders held by the company.: a)Declare a dividend is a common practice.b)The ordinary resolution on the dividend declaration will be passed at the general meeting. 
4. It must be paid within 30 days of the dividend declaration. 

Difference between final dividend and interim dividend :

Key dividend dates:

There are four key dates included within the profit prepare, of which the declaration date is the primary.

1. The statement date is additionally alluded to as the declaration date since a company informs shareholders and the rest of the advertise. The affirmation date is the date on which a company authoritatively commits to the installment of a profit.
2. The ex-dividend date, or ex-date, is the date on which a stock starts exchanging without the profit. To get the pronounced profit, shareholders must possess the stock earlier to the ex-dividend date.
3. The record date more often than not happens three trade days after the ex-dividend date and is the date on which a company authoritatively decides the shareholders of record, those who claimed the stock earlier to the ex-dividend date, who are qualified to get the profit installment.
4. The installment date is the date the company sends out profit installments to shareholders. The installment date is ordinarily approximately one month after the record date. 

Section 123(1): source of dividend:

1.Out of the benefits of the company of the current year, after giving for censure.

2. Out of the benefits of the company for any past budgetary year, after giving for expostulation.
3. Any sum gotten from the Central Government or State Government for the installment of profit.

Proviso : before declaring the dividend consider the following points:

1. Unrealized gain, notional gain, or asset revaluation, as well as any change in carrying amount of an asset or liability on measurement of the asset or liability at fair value, are not considered for dividend purposes.
2. Prior to declaring a dividend, the company must transfer such percentage of profit as it may consider appropriating to the company’s reserve.
3. The company shall not declare or pay a dividend from any reserve other than the General Reserve.
4. No company can declare a dividend unless previous year losses and depreciation that were not provided in the previous year or years are offset against the company’s profit for the current year.

Rule 3 : inadequacy of profit :

In the event of inadequacy or absence of profits in any year, a company may declare dividends from free reserves if the following conditions are met:

• The rate of pronounced profit should not surpass the normal rate at which profit was announced within the final 3 a long time. This run the show might not apply in the event that company did not pronounced profit in last 3 a long time.
•  The whole sum pulled back from the collected benefits might not surpass 1/10 of the whole of the paid-up share capital and free saves.
• The sum so pulled back might be to begin with utilized to set off the misfortunes caused in budgetary year in which profit is pronounced some time recently any profit in regard of value offers is pronounced.
•  The adjust of saves after such withdrawal should not fall below 15% of its paid up share capital as showing up within the most recent reviewed money related articulation.

Dividends announced at the General Meeting of Shareholders must not exceed the dividend rate proposed by the Board of Directors. Dividends declared by members at the general meeting may be lower than dividends proposed by the board of directors. Dividend paid at the General Meeting is the Final Dividend. Prohibition of declaring dividends under the Companies Act 2013 . if a company fails to comply with Articles 73 and 74 regarding the deposit and returns the deposit or interest, it may or may not declare a dividend. If a company does not comply with the receipt of the margin and the return of the deposit, the company cannot declare a dividend. 

Punishment for not distributing dividend:

Every director of the company will be punished with a two-year prison sentence and a fine of at least one thousand rupees if the company declares dividends but fails to pay them or the warrant relating to them has not been posted within thirty days of the date of the declaration to the shareholders. The company shall be obligated to pay simple interest at a rate of 18%p.a. for the duration of such default. It is up to the Board of Directors to declare dividends and transfer this amount to the reserve fund.

As for dividends, the board’s decision in good faith cannot be challenged. Dividends must be declared on an unconditional basis and must be paid within 30 days. Dividends of Equity Shares cannot be distributed until after Preference Shares Dividends have been declared. The dividend amount, including provisional dividends, will be deposited in a scheduled bank in a separate account within 5 days of the said dividend declaration date.  

Aishwarya Says:

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