Declaration of dividend

This query is : Resolved

Himansu (Querist)
Follow

16 December 2011 A company wants to declare inderim dividend. It occured loss last year but current year till sept it has profits. Can it declare dividend. if so please explain procedures to be followed.

Guest

Guest (Expert)

16 December 2011 Yes it can declare dividend.

Procedure to declare interim dividend
1.
Verify from your Articles of Association that they authorise the directors to declare interim dividend, if not, then alter the Articles of Association. [Procedure for alteration of Articles of Association]

2.
Convene Board Meeting after giving notice to all the directors [Section 286] to discuss besides others the following matters.

· To declared interim dividend.

· To decide the record date. [Agenda]

3.

Inform the Stock Exchange with which shares of the company are listed about the date of this meeting prior to the board meeting. [Clause 19 of the Standard Listing Agreement]

4.

If case the shares of the company are listed on a Stock Exchange, the following must be done:-

· Inform the said Stock Exchange within 15 minutes of the board Meeting, by letter or fax of all dividends declared;

· Give intimation to the Stock Exchange about the period of record date atleast 21 days in advance. [Clause 15 & 16 of the Standard Listing Agreement]

· Issue simultaneously the dividend warrants which shall be encashable at par at all the branches of your company’s bankers.

· The dividend warrants should reach the shareholders on or before the date fixed for payment of dividend. [Clause 20 and 21 of the Standard Listing Agreement]

5.

In case of joint holders, send the dividend warrant to the joint shareholders who is first named on the register of Members of your company or to such person and to such address as the shareholder or shareholders may in writing direct. [Section 205(5)(b)]

6.

Open a separate bank account and credit the amount of dividend within 5 days from the date of declaration.

7.

Make the payment or issue dividend warrants within thirty days from the date of declaration.

8.

If the company fails to pay the dividend declared or fails to post the warrant in respect thereof within thirty days from the date of declaration, every director of the company if he is knowingly a party to the default will be punishable with simple imprisonment of 3 years and will also be liable to a fine of Rs. 1,000/- for every day during which the default continues and the company will be liable to pay simple interest@18% per annum during the period for which such default continues. [Section 207]

9.

The amount of dividend must be rounded off to the nearest rupee.

10.

Where instruments of transfer have been received by the company and the transfer of such shares has not been registered when the dividend warrants were posted, the amount of dividend must be kept in the special account called “Unpaid Dividend Account” unless the company is authorised by the registered holders of those shares in writing to pay the dividend to the transferees specified in the said instruments of transfer. [Section 206A]

11.

Arrange to transfer the total amount of dividend, which remains unpaid or unclaimed within seventy days from the date of expiry of thirty days from the date of its declaration to a special account to be opened by your company in this behalf in any scheduled bank to be called “Unpaid Dividend Account of Company Ltd.”. [Section 205A(1)]

12.

Further note that no offence as aforesaid will be deemed to have been committed by your company’s directors in the following cases:-

· Where the dividend could not be paid by reason of the operation of any law;

· Where a shareholder has given direction to the company regarding the payment of the dividend and those directions cannot be compiled with;

· Where there is a dispute regarding the right to receive the dividend;

· Where the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder;Where for any other reason the failure to pay the dividend or to post the warrant within the period of thirty days from the date of declaration was not due to any default on the part of the company. [Section 207 Proviso]

NOTE

Dividend that is paid on shares before the time of declaring the final dividend is called interim dividend. It is a dividend paid by the directors any time between two annual general meetings of the company. The word ‘interim’ is not used as meaning temporary or provisional, but as meaning (happening) in the meantime, meanwhile, or intervening time, since interim dividend is paid between two annual general meetings at which final dividend is declared. It is a dividend paid on the basis of less than a full year's results. The Act does not contain any provision with regard to interim dividend. The Act vests the power of recommendation of a final dividend in the Board of Directors and the power of declaration in the shareholders. However, the articles of association usually empower the directors to pay an interim dividend.

Regulation 86 of Table-A provides that the Board may from time to time pay to the members such interim dividends as appear to it to be justified by the profits of the company. The power given by such an article is vested in the directors and cannot be exercised by the shareholders of the company and a resolution by the company in general meeting requiring the directors to declare an interim dividend is inoperative, unless a concurrent power to declare such a dividend is expressly conferred on the company in general meeting by the articles.

Before declaring an interim dividend, the directors must satisfy themselves that there are profits available for distribution by way of dividends. The declaration of interim dividends depends much more upon estimates and opinions than the declaration of a final dividend, which is made upon the information contained in a formal balance sheet

The directors' paramount duty is not to pay dividends out of capital, and accordingly, after declaring an interim dividend and before payment the directors can reconsider the matter and properly refuse to pay it for they may discover that it will, if paid, have to be paid out of capital

An important difference between final and interim dividends is that once a final dividend has been declared, it is a debt payable to the shareholders and cannot be revoked or reduced by any subsequent action of the company; but where directors have power to pay interim dividends, their decision to do so is not a declaration of a dividend, and so can be rescinded or varied at any time before the dividend is paid

Guest

Guest (Expert)

17 December 2011 In point no 7 read seventy as SEVEN DAYS

Upgrade to CAclubindia Pro. Subscribe Now!