Procedure for declaring Final Dividend
1. Issue notice for holding a meeting of the Board of directors .
The notice must be in accordance with Section 286 of the Companies Act. It must contain time, date and venue of the meeting and details of the business to be transacted thereat and must be sent to all the directors for the time being in India and to all other directors, at their usual address in India. In case of Listed Companies as per Clause 19(a) of the Listing Agreement a prior intimation of at least 7 days about the date of the Board meeting should be given to Stock exchanges where the securities of the company are listed, simultaneously with notice under section 286..
2. Hold Board meeting.
The Board meeting should pass following resolutions:
a. approving the annual
b. recommending the quantum of final dividend to be declared at the next AGM and the source of funds for the payment thereof, i.e. :
Ø out of profits of the company after providing for depreciation for the current financial year and also for earlier years, if not already provided and amount to be transferred from the current profits to reserves as per provisions of the Companies (Transfer of Profits to Reserves) Rules, 1975; or
Ø out of reserves in accordance with the provisions of the Companies (Declaration of Dividend out of Reserves), Rules, 1975.
c. fixing time, date and venue for holding the next annual general meeting of the company.
d. approving notice for the annual general meeting and authorizing the company secretary to issue the notice on behalf of the Board of directors of the company to all the members, directors and auditors of the company and other persons entitled to receive the same.)
3. Hold the annual general meeting and declare final dividend
Hold the annual general meeting and pass an ordinary resolution declaring the payment of dividend to the shareholders of the company as per recommendation of the Board. The shareholders cannot declare the final dividend at a rate higher than the one recommended by the Board. However, they may declare the final dividend at a rate lower than the one recommended by the Board
4. Prepare a statement of dividend
A statement of dividend in respect of each shareholder containing the following details should be prepared
a. Name and address of the shareholder with ledger folio No.
b. No. of shares held.
c. Dividend payable.
5. Deposit the amount payable in a separate bank account.
Open a bank account and credit the dividend payable with the said bank account within five days of declaration of dividend.
Dividend should be paid out of such bank account within thirty days of declaration.
6. Print sufficient number of dividend warrants
In consultation with the company’s banker appointed for the purpose of dividend, print sufficient number of dividend warrants. In case of dividend warrants with MICR facility get approval of the RBI for printing the same. The dividend warrants must be filled in and signed by the persons authorized by the Board.
7. Intimate the date of dividend payable to Stock exchanges
In the case of listed companies inform the stock exchanges at least 21 days in advance, of the date from which the dividend shall be payable.(Clause 21 of the listing Agreement)
8. Pay dividend Tax
The Company has to pay dividend tax subject to the provisions of the Income tax Act 1961.
9. Make arrangement with the bank for payment of dividend
The company must make arrangements with banks for payment of dividend at par. In case of listed companies arrangements have to make with bankers for payment of dividend at all centers as per requirement of the listing agreements with the stock exchanges. Dividend should be paid out of such bank account within thirty days of declaration.
10. Maintain an unpaid dividend A/c
The company must open an account called “Unpaid Dividend Account”. In case the instrument of transfer has been received by company but transfer of such shares has not been registered, then the dividend payable should be kept in the said “Unpaid Dividend Account”. However the registered holder of these shares authorizes company in writing to pay dividend to the transferee specified in the said instrument of transfer, the company can pay dividend to said transferee.
11. Dispatch dividend warrants
The company must send the dividend warrants within thirty days of the declaration of dividend [Refer Section 207]. In case of joint shareholders, dispatch the dividend warrant to the first named shareholder. In the case of defaced, torn or decrepit Dividend warrants, a duplicate warrant may be issued before the expiry of the validity period of the Dividend warrant on surrender to the company of such defaced, torn or decrepit warrant.
12. Preservation of Dividend Warrants
Where the company has given an undertaking to the Bank for preservation or safe keeping of paid Dividend warrants for a specified period, the warrants returned by the Bank, after payment thereof, should be preserved for such period or eight years from the date of the warrant, whichever is longer.
13. Maintain Register of dividend Warrants/Register of Duplicate Dividend warrants
Particulars of every Dividend warrant issued should be entered in a Register of Dividend Warrants, indicating the name of the person to whom the Dividend warrant is issued, the number and amount of the Dividend warrant and the date of issue of such warrant. In case of Duplicate dividend warrant is issued, particulars of every such duplicate Dividend warrant issued should be entered in a Register of Duplicate Dividend Warrants, indicating the name of the person to whom the Dividend warrant is issued, the number and amount of the Dividend warrant in lieu of which the duplicate warrant is issued and the date of issue of such duplicate warrant.
14. Notice of dispatch of dividend warrants to members.
In the case of listed companies, a notice must be published in a newspaper circulating in the district in which the registered office of the company is situated to the effect that dividend warrants have been posted and advise those members of the company who do not receive them to get in touch with the company for appropriate action within a period of fifteen days.
15. Issue bank drafts and/or Cheques ,if required
Issue bank drafts and/or Cheques to those members who inform that they received the dividend warrants after the expiry of their currency period or their dividend warrants were lost in transit after satisfying that the same have not been encashed.
16. Transfer of unpaid or unclaimed dividend to a special account
The unpaid /unclaimed amount should be payable to a special account named “Unpaid dividend A/c” within 7 days after expiry of the said period of 30 days.
17. Reconcile the amount of unpaid/unclaimed dividend with bakers
The company should maintain the details of unpaid or unclaimed Dividend and reconcile the amounts thereof with the concerned bankers, periodically.
18. Give individual intimation to the Members, whose unclaimed Dividend is transferred to IEPF
After the expiry of the period of seven years from the date from which unclaimed and unpaid Dividends were transferred to the Unpaid Dividend Account, no claims shall lie against the Fund or the company in respect of any such amounts. Hence, the company should intimate the concerned Members individually of the amount of Dividend remaining unclaimed which is liable to be transferred to the Investor Education and Protection Fund and advising the Member to claim such amount of Dividend from the company before such transfer.
25. Transfer unpaid dividend to Investor Education and Protection Fund
After the expiry of seven years from the date of transfer to unpaid dividend A/c, unpaid dividend has to transfer to Investor Education and Protection Fund. The company when crediting to the account of the fund, should separately furnish to RoC a statement in Form 1 of IEPF Rules duly certified by chartered accountant or a company secretary or a cost accountant practising in India or by the statutory auditors of the company.
The transfer to the Investor Education and Protection Fund should be made within thirty days of the expiry of seven years from the date of transfer to the Unpaid/Unclaimed Dividend Account.
If the Unpaid Dividend Account is kept as a fixed deposit or in any account on which interest is earned, the interest earned should be transferred to the Investor Education and Protection Fund.
26. Preparation and preservation of Dividend Register
The Company must prepare a Dividend Register and the same should be kept in safe custody for eight years.
27. Make Disclosures in Annual Reports.
The company should make the following disclosures in Annual Reports
1. The Balance Sheet of the company should disclose under the head ‘current liabilities and provisions’, the amount lying in the Unpaid Dividend Account together with interest accrued thereon, if any.
2. The Annual Report of the company should disclose the total amount lying in the Unpaid Dividend Account of the company in respect of the last seven years. The amount of Dividend, if any, transferred by the company to the Investor Education and Protection Fund during the year should also be disclosed. The amounts lying in the Unpaid Dividend Account and the amounts transferred to the Investor Education and Protection Fund should be disclosed in the Directors’ Report.
3. The Annual Return of the company should mention that the amount of Dividend remaining unpaid or unclaimed for a period of seven years from the date such Dividend became payable by the company, together with interest accrued thereon, if any, has been credited to the Investor Education and Protection Fund.