19 June 2013
Sir, im manikanta,my sir told me to prepare list of required document and procedure for payment of dividend,please let me know about all the things about dividend payment procedure and it is urgent sir plese help me.
21 June 2013
Dividend means the portion of the profit received by the shareholders from the company's net profit, which is legally available for distribution among the members. Therefore, dividend is a return on the share capital subscribed for and paid to its shareholders by a company. Dividend defined under section 2(14A) of the Companies Act, 1956, includes any interim dividend. 1. Basic difference between dividend and interest Dividend is paid on the company's paid up share capital including equity and preference shares whereas interest is generally paid on debentures, loans and borrowings. Dividend is an appropriation of profit whereas interest is considered charge against profit. 2. Types of dividend There may be two types of dividend:— (a) Interim dividend, and (b) Final dividend. 3. Meaning of Interim dividend Dividend is said to be an interim dividend, if it is declared by the Board of directors between two annual general meetings of the company. However, all the provisions relating to the payment of dividend shall be applicable on interim dividend also. 4. Meaning of Final dividend Dividend is said to be a final dividend if it is declared at the annual general meeting of the company. Final dividend once declared becomes a debt enforceable against the company.
5.1. Payment of dividend in proportion to the time and amount paid:
Section 93 of the Act, states that a company may, if so authorised by its articles, pay dividend in proportion to the amount paid up and time of receipt, on each share where a larger amount is paid on some shares than on others. Therefore, if the articles of the company does not authorise payment of dividend in proportion to the amount paid up on each share, the payment of dividend will have to be made only in proportion to the called up amount on the nominal value of the share capital of the company.
5.2. Dividend has to be paid to all the shareholders in the same ratio, irrespective of time factor:
In case of a listed company, as per the directions of the SEBI and listing conditions, the company has to make dividend to all the shareholders on pari passu, with the existing shareholders of the company, irrespective of the time an amount paid by them. It means even if the company has made allotment of new shares on 28th March, 2006, the new shareholders shall be eligible to participate and receive the dividend for whole of the year, irrespective that they have bring the capital only on 28th March, 2006. Further that if the company has issued shares after closing of the financial year, but before book closure date for payment of dividend, say on 25th June, 2006 these share capital, even were not in exist on the closing of the financial year 31st March, 2006, will also be eligible to participate for dividend for whole of the year 2005-06, because the shares were in existence on the record date/book closure. It may be noted that the SEBI rules and regulations supersede the provisions of the Companies Act.
21 June 2013
6. Compulsory requirement for making provisions for depreciation before payment of dividend:
In terms of the provisions of section 205 of the Act, no company can pay dividend in any year without charging depreciation in the profit and loss account for the current year and that there is no balance of un provided depreciation of any earlier year or years. However, the Central Government has power to allow any company in the public interest to pay dividend for any financial year out of the profits for that year or any previous financial year without providing for depreciation. [Section 205(1)(c)] The application is required to be filed to the Central Government electronically.
21 June 2013
7. Payment of dividend in case where the company has incurred loss in a previous year:
Section 205(1)(b) provides that if a company has incurred loss in any previous year or years, then the amount of loss or an amount which equal to the amount provided for depreciation for the year or those years whichever is less shall be set off against the profit of the company for the year for which dividend is proposed to be declared or paid. Therefore, it cannot pay dividend in the latter year unless the company has adjusted the amount of loss against the profits of the year referred to above. The company shall ensure that the previous year's depreciation will be duly provided before paying dividend.
8. Requirement for compulsory transfer of certain percentage of profit to reserves:
Every company shall transfer a portion of its net profit of the year to general reserve before deciding to pay dividend. The amount of net profit transferred to reserve shall vary with the rate of dividend proposed to be paid and as per the Companies (Transfer of Profits to Reserves) Rules, 1975.
21 June 2013
Final dividend to be declared at an annual general meeting Normally a dividend is declared at an annual general meeting where, among other things, the annual accounts are considered and adopted. In that condition, it is beyond the powers of the company to declare a further dividend at a general meeting after the declaration of dividend at the annual general meeting. However, a company, which could not declare a dividend at an annual general meeting, may declare the dividend at a subsequent general meeting. It has also been clarified by the Department of Company Affairs vide Circular No. 22 [7/9/74-CL-II], dated 25-9-1975 that while there is no provision in the Companies Act prohibiting the declaration of dividend at a general meeting other than the annual general meeting of the company (vide Regulation 85 of Table A of Schedule I) unless otherwise, provided in the Articles of Association, it is beyond the powers of a company to declare a further dividend after the declaration of dividend at the annual general meeting. In this connection attention is invited of all concerned to the decision of the Calcutta High Court in the matter of Biswa Nath Pd. Khaitan v New Central Jute Mills Ltd. (1961) 31 Comp Cas 125. Thus, a company, which could not declare a dividend at an annual general meeting, may do so at a subsequent general meeting. On the other hand, where a company has declared a dividend at a general meeting neither the company nor its directors can declare a further dividend for the same year.
Dividend includes any interim dividend. Before declaration of interim dividend, it is legal obligation on the Board of directors of the company to satisfy that the financial position of the company is sound enough for declaration of dividend out of net profit of the company available for distribution after providing for depreciation and making the mandatory transfer of profits to reserves.
2. The Articles must provide power to pay Interim dividend
The Articles of the company must authorise the Board to declare interim dividend. Regulation 86 of Table 'A' provides that the Board may from time to time pay to the members such Interim dividend as appear it to be justified by the profit of the company. Where there is no power in the articles authorising the Board to pay interim dividend, the only way open to the company is to pay dividend after the same is declared at the annual general meeting. Even in respect of the latter the Articles must contain the provision therefor.
3. Interim dividend should be declared by the Board at the meeting
A Board meeting should be called and rate at which dividend payable must be specifically stated in the resolution passed for declaration of interim dividend. Declaration of interim dividend by directors does not create a debt; but declaration of dividend at a general meeting of company does.
4. Dividend to be rounded off to nearest rupee
The payment of interim dividend to the shareholders involving fraction of 50 paise and above be rounded off to the rupee and the fraction of less than 50 paise may be ignored.
5. Declaration of Interim dividend should be unconditional The Board should obtain prior approval from the financial institutions/banks wherever required before declaration of interim dividends and it should be unconditional.
6. Amount of Interim dividend must be transferred to a separate bank account and payment must be paid within 5 days Interim dividend declared by the Board of directors of the company shall be transferred to the separate bank account within 5 days of such declaration and the amount so transferred shall not be utilised for any other purpose. The Interim dividend shall also be paid within thirty days from the date of its declaration by the Board.
7. Mode of payment of Interim dividend Interim dividend shall be payable in cash and may be paid by cheque or warrant sent through the post direct to the registered address of the shareholder entitled to the payment of Interim dividend, or in the case of joint shareholders, to the registered address of that one of the joint shareholders who is first named on the register of members, or to such person and to such address as the shareholders or the joint shareholders may in writing direct.
8. Opening of unpaid Interim dividend account Where an Interim dividend is declared by the Board of directors, which had not been paid or claimed within 30 days from the date of the declaration, the company shall transfer the unpaid or unclaimed Interim dividend to special account opened called "Unpaid Interim Dividend Account of XYZ Limited within seven days from the date of expiry of the said 30 days.
21 June 2013
9. Transfer of unpaid/unclaimed Interim dividend to the Investor Education and Protection Fund
The provisions of sections 205A and 205C shall also apply to the Interim dividend which provides that any amount of unpaid or unclaimed dividend shall be transferred after 7 years to the Investor Education and Protection Fund established by the Central Government as dividend includes Interim dividend, the company will have to comply with the provision of said sections in respect of Interim dividend.
10. Revocation of Interim dividend cannot be made Section 2(14A) provides that the dividend includes interim dividend, therefore, once it has been declared and communicated, it shall become a debt for a company and cannot be revoked by the Board of directors after its declaration.
11. Procedure for payment of Interim dividend to non-residents The company should approach authorised dealer (A.D.) by letter enclosing Form RCD 2, Form A2 and certified copy of resolutions of the Board (all in duplicate). The A.D. will after verification remit the dividend to non-residents and send the duplicate copy of forms to the RBI regional office.
21 June 2013
Approval of members at the general meeting for Interim dividend
If the Interim dividend is approved by the Board of directors, the amount of Interim dividend shall be included in the profit and loss account for the year and also in the directors' report alongwith the final dividend, if any, proposed for the approval of the members at the forthcoming annual general meeting. When the audited accounts and directors' report are placed at the annual general meeting and adopted by the members, the interim dividend is deemed to have been approved by the company in general meeting. Approval of dividend is the privilege of the general meeting and the Board can pay interim dividend if so authorised by the Articles of Association subject to the regularisation of the interim dividend by the company in general meeting. The general meeting for this purpose shall be an annual general meeting only, for the profit for the financial year would not otherwise be known. [Letter No. 8/13/(205)/79-CL-V, dated 18-7-1981].
CAclubindia
