Dividened out of reserves?

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Nidhi Jain (Querist)

07 April 2012 One of our Pvt Co. ha nil profit in Current year but having huge accumulated profitsof previous years now issue is that we want to distribute these accumulated profits to shareholders bur Dividened (Delaration of Dividened out of reserve) Rules 1975impose a resriction on the utilisation of such Accumulated Profits. In this Co.
Paid up capital is Rs I Lack
accumulated profits 11Lakhs
Is there any exception of these Rules or how can a co. can utilise these accumulated profits pls give your valuable advice to solve this matter?

Ajay Mishra

Ajay Mishra (Expert)

07 April 2012 Hi

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.

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.

Regards

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