declaration of dividend

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Querist : Anonymous

Querist : Anonymous (Querist)

16 November 2010 are there any restrictions for declaring a dividend of 400% for a private co. except transfer to reserves 10% of financial year's profits

Ajay Mishra

Ajay Mishra (Expert)
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17 November 2010 Hi

Transfer to Reserve : U/s 205(2A) it is provided that no dividend shall be declared or paid by a company out of the profits, except after the transfer to the reserves of such percentage of its profits, not exceeding 10% as may be prescribed.

The Central Government has framed The Companies (Transfer of Profits to Reserves) Rules, 1975. According to these rules, no dividend can be declared or paid by a company except after the transfer to the reserves of the company of a percentage of its profits as specified below:

(1) Not less than current profits - 2.5% of the - Where the dividend exceeds 10% but does not exceed 12.5%.

(2) Not less than current profits - 5% of the - Where the dividend exceeds 12.5% but does not exceed 15% of paid up capital.

(3) Not less than current profits - 7.5% of the - Where the dividend proposed exceeds 15% but not above 20% of the paid up capital.

(4) Not less than current profits - 10% of the - Where the dividend exceeds 20% of the paid up capital

If a company wants to make additional voluntary transfer of a higher percentage to the reserves, it may do so as per Rule 3 of these Rules.

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