19 September 2009
Declaration of dividend out of previous years profits transferred to the reserves
In case if the current year's net profits are not adequate or not available, a company may draw the required amount from reserves created out of transfer of profit in previous years as per the Companies (Declaration of Dividend out of Reserves) Rules, 1975 subject to the following conditions:—
(i) The rate of dividend declared shall not exceed the average rate of dividend declared in the five years preceding the current year or 10% of the paid-up capital, whichever is less.
(ii) The maximum amount to be drawn from the accumulated profits earned in previous years and transferred to the reserves shall not exceed 10% of the paid-up capital and reserves and the amount so drawn shall be first utilised for writing off losses incurred before declaration of any dividend in respect of preference or equity shares.
(iii) The balance remaining in the reserves after such drawal shall not fall below 15% of the paid-up share capital. However, the above said conditions will not be applicable for utilisation of any profit earned in any previous years and remains as surplus balance of profit in the profit and loss accounts and carried to the balance sheet of the company.
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