Dividend - urgent - practical query

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Hi, 

a private ltd company has paid up capital of 15 lakhs (equity shares of FV 10 each).

The company wants to declare Interim dividend, which is also dividend for the first time.

 

The company has not transferred any amount to general reserves to date. (Year of incorporation was 2006-07)

It is proposed to pay 75 lakhs as dividend out of the P&L balance shown in the balance sheet.

This makes the proposed dividend 500%.

Profit and loss balance runs into 600 lakhs before declaration of dividend.

 

Can the company transfer to the General reserve from the P&L shown in the balance sheet?

Now, problem is that during the year, company has significantly reduced operations, and hence does not have profit.

Can the transfer from P&L be treated at par with transfer from current year profit?

 

Please advice on the same.

Advance Thanks for your replies.

Replies (1)

My other query is - is it possible to declare dividend (or of such magnitude)?

Because as per the companies declaration of dividend rules,

 

 

2. Declaration of Dividend out of Reserves.-

 

In the event of inadequacy or absence of profits in any year, dividend may be declared by a company for that year out of the accumulated profits earned by it in previous years and transferred by it to the reserves, subject to the conditions that-

 

(i) the rate of the dividend declared shall not exceed the average of the rates at which dividend was declared by it in the five years immediately preceding that year or ten per cent of its paid-up capital, whichever is less;

 

(ii) the total account to be drawn from the accumulated profits earned in previous years and transferred to the reserves shall not exceed an amount equal to one-tenth of the sum of its paid up capital and free reserves and the amount so drawn shall first be utilised to set off the losses incurred in the financial year before any dividend in respect of preference or equity shares is declared ; and

 

(iii) the balance of reserves after such drawal shall not fall below fifteen per cent of its paid-up share capital.

 

So how can a company declare a first time dividend?

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