According to section 2(35) of the Companies Act,2013, dividend includes any interim dividend.It is the profit of the company which is not retained in the business but distributed to the shareholders in proportion to the amount paid up on the shares held by them. Usually,dividends are payable for a financial year,after the final accounts are ready and the amount of distributable profits are available.Dividend is payable only if it is declared in the annual general meeting of a company,upon the recommendation of its Board of Directors. The dividend paid by the Board of Directors between two annual general meeting and which is not declared at an annual general meeting is known as interim dividend. The companies under section 8 of the Act are prohibited from paying any dividend to its members.
Procedure for declaration and payment of final dividend
The following steps are to be taken by a company for the payment of dividend:
- Computation of depreciation-The depreciation shall be computed first,either on the basis of the rate specified in Schedule XIV or any other basis approved by the Central Government.
- Mandatory transfer of profits to the reserves-Before declaring any dividend,some part of the profit has to be compulsorily transferred to the reserves of the company. The amount to be transferred is based on the proposed rate of dividend but the voluntary of higher percentage of profits is permitted subject to the conditions stipulated in the Act.
- The Board’s resolution
- Issue a notice in accordance of section 173 of the Companies Act for holding a meeting of the Board of Directors. The notice should mention the date,time and venue of the meeting,the details of the business to be transacted and be sent to all the directors for the time being in India and to all other directors,at their usual addresses through speed post or hand delivery or by electronic means.
- Hold Board meeting to pass resolutions for approving the annual accounts and recommending the quantum of final dividend to be declared at the next annual general meeting and the sources funding for the payment and the amount to be transferred to the reserves.
Unless the Board endorses the payment of dividend,it cannot be declared at an annual general meeting.
- The Annual General Meeting-The notice of agenda for an annual general meeting must compulsorily mention the declaration of dividends. It is also required to be sent to the members and creditors. An ordinary resolution is required to be passed for the declaration of dividend but the shareholders are not allowed to increase the rate of dividend recommended by the Board.
- A separate dividend account is to be created with the company’s banks. The dividend amount payable should be transferred to that account. Within 30 days of the AGM,dividend warrants should be sent out to the shareholders.
- Within 7 days from the date of expiry of 30 days from the annual general meeting,any amount remaining unclaimed or unpaid should be transferred to the ‘unpaid dividend’ account opened in a scheduled bank.
- In addition to the income tax chargeable in respect of the total income of a company,any amount declared,distributed or paid by such company,in any assessment year,by way of dividend,interim or otherwise paid out of current or accumulated profit is charged with an additional tax at the rate of 15%. The above tax is to be paid within 14 days of declaration,distribution or payment of dividend,whichever is earlier.
- Special provisions in regard to listed companies-In addition to all the above steps,listed companies need to give a prior intimation as to the venue of the meeting, to the stock exchange where their securities are listed. Within 15 minutes of the end of the Board meeting,intimation is to be sent out to the stock exchange mentioning the particular and details of the dividend.
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