Dividend declaration by a pvt. company

Procedure :-

1.  Firsty of all, dividend is recommended by the board (sec.217).
2.  The members in  the AGM may declare the dividend by passing OR. Declaration of dividend at  an  AGM is an item of ordinary business (sec.173)
3.  The members may reduce the rate or amount recommended by the Board, but they cannot increase it.

Sources of divident(sec.205):-

                   Examine that dividend has been declared only out of:

1. Profits of current financial year
2. undistributed profits of previous FY
3. Moneys provided by CG or SG.

Provision for depreciation :-

1.  Profits for every FY shall be arrived at after providing for depreciation.
2. CG may allow a company to declare dividend for any FY without providing for depreciation.
3. If in any previous FY, depreciation has not been provided, it shall be provided before declaring dividend.

Transfer to reserves:- Companies (Transfer of profits to reserves)Rules,1975.  Before declaration or payment of diviend, profits shall be compulsorily transferred to reserves at the following rates:-

Rate of proposed dividend                             Minimum amount to be transfered to reserves

Not exceeding10%                                                         NIL

Exceeding 10% but not exceeding 12.5%                  2.5% of current profits

Exceeding 12.5% but not exceeding 15%                   5%           "

Exceeding 15% but not exceeding 20%                       7.5%        "

 Exceeding 20%                                                                 10%         "

Deposit of diviend :-   

1. It must be deposit in a separate bank account within 5 days of   declaration of dividend.
2. The amount so deposited shall be used only for the purpose of payment of dividend (whether interim or final)