DECLARATION OF DIVIDEND FROM PAST PROFITS
This query is : Resolved
18 September 2009
OURS IS A PRIVATE LIMITED COMPANY AND THE PROFITS FOR THE CURRENT YEAR AFTER PROVIDING FOR DEPRECIATION IS NOT SUFFICIENT TO DECLARE THE DIVIDEND WHICH WE WISH TO DISTRIBUTE. HOWEVER, THERE IS PAST ACCUMULATED PROFIT SHOWN AS A SURPLUS
APART FROM GENERAL RESERVES. WILL PAYING OF DIVIDENDS FROM THIS SURPLUS ALSO BE GOVERNED BY PROVISIONS OF SECTION 205 A?
AN IMMEDIATE CLARIFICATION WILL BE HIGHLY APPRECIATED.
APART FROM GENERAL RESERVES. WILL PAYING OF DIVIDENDS FROM THIS SURPLUS ALSO BE GOVERNED BY PROVISIONS OF SECTION 205 A?
AN IMMEDIATE CLARIFICATION WILL BE HIGHLY APPRECIATED.
18 September 2009
Visit the desired rules applicable to your case below:
Companies (Declaration of Dividend out of Reserves) Rules, 1975
[Notification No. GSR 427(E), dated July 24, 1975]2
In exercise of the powers conferred by sub-section (3) of section 205A, read with clause (a) of sub-section (1) of section 642 of the Companies Act, 1956 (1 of 1956), the Central Government hereby makes the following Rules, namely:—
1. Short title.—These Rules may be called the Companies (Declaration of Dividend out of Reserves) Rules, 1975.
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 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 amount 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;
(iii) the balance of reserves after such drawal shall not fall below fifteen per cent of its paid up share capital;
[(iv) the Forms prescribed in these rules may be filed through electronic media or through any other computer readable media as preferred under section 610A of the Companies Act, 1956;
(v) the electronic form shall be authenticated by the authorized signatories using digital signatures, as defined under the Information Technology Act, 2000 (21 of 2000);
(v) the Forms prescribed in these rules, when filed in physical form, may be authenticated by authorized signatory by affixing his signatures manually.]3
Explanation.—For the purposes of this rule, "profits earned by a company in previous years and transferred by it to the reserves" shall mean the total amount of net profits after tax, transferred to reserves as at the beginning of the year for which the dividend is to be declared; and in computing the said amount, the appropriations out of the amount transferred from the Development Rebate Reserve at the expiry of the period specified under the Income-tax Act, 1961 (43 of 1961) shall be included and all items of capital reserves including reserves created by revaluation of assets shall be excluded.
Regards
Companies (Declaration of Dividend out of Reserves) Rules, 1975
[Notification No. GSR 427(E), dated July 24, 1975]2
In exercise of the powers conferred by sub-section (3) of section 205A, read with clause (a) of sub-section (1) of section 642 of the Companies Act, 1956 (1 of 1956), the Central Government hereby makes the following Rules, namely:—
1. Short title.—These Rules may be called the Companies (Declaration of Dividend out of Reserves) Rules, 1975.
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 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 amount 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;
(iii) the balance of reserves after such drawal shall not fall below fifteen per cent of its paid up share capital;
[(iv) the Forms prescribed in these rules may be filed through electronic media or through any other computer readable media as preferred under section 610A of the Companies Act, 1956;
(v) the electronic form shall be authenticated by the authorized signatories using digital signatures, as defined under the Information Technology Act, 2000 (21 of 2000);
(v) the Forms prescribed in these rules, when filed in physical form, may be authenticated by authorized signatory by affixing his signatures manually.]3
Explanation.—For the purposes of this rule, "profits earned by a company in previous years and transferred by it to the reserves" shall mean the total amount of net profits after tax, transferred to reserves as at the beginning of the year for which the dividend is to be declared; and in computing the said amount, the appropriations out of the amount transferred from the Development Rebate Reserve at the expiry of the period specified under the Income-tax Act, 1961 (43 of 1961) shall be included and all items of capital reserves including reserves created by revaluation of assets shall be excluded.
Regards
09 April 2013
Although Its too late to reply but was just going through net and have seen this.
well
DECLARATION OF INTERIM DIVIDEND
According to Section 2 (14A) dividend includes any interim dividend.
Therefore, the procedures which are applicable to final dividend (i.e. Sections 205, 205A, 205C, 206, 206A & 207) also applies to any interim dividend.
Accordingly, like final dividend, interim dividend shall be considered as debt once declared and, therefore, cannot be revoked.
The Board of directors may declare interim dividend and the amount of dividend including interim dividend shall be deposited in a separate bank account within five days from the date of declaration of such dividend
well
DECLARATION OF INTERIM DIVIDEND
According to Section 2 (14A) dividend includes any interim dividend.
Therefore, the procedures which are applicable to final dividend (i.e. Sections 205, 205A, 205C, 206, 206A & 207) also applies to any interim dividend.
Accordingly, like final dividend, interim dividend shall be considered as debt once declared and, therefore, cannot be revoked.
The Board of directors may declare interim dividend and the amount of dividend including interim dividend shall be deposited in a separate bank account within five days from the date of declaration of such dividend
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13 August 2014
Can interim dividend be declared out of free-reserves under the Companies Act,2013?
13 August 2014
Yes, As per New Act, we Can.
Please Go through following para.
The Board of Directors of a company may declare interim dividend during any financial year out of the surplus in the profit and loss account and out of profits of the financial year in which such interim dividend is sought to be declared. In case the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during the immediately preceding three financial years. {Section 123(3)}.This restriction ensures financial prudence.
Please Go through following para.
The Board of Directors of a company may declare interim dividend during any financial year out of the surplus in the profit and loss account and out of profits of the financial year in which such interim dividend is sought to be declared. In case the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during the immediately preceding three financial years. {Section 123(3)}.This restriction ensures financial prudence.
13 August 2014
Does it mean company can pay interim-dividend only out of profits and not from free-reserves?
13 August 2014
Balance in P&L Account is also free reserve.
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