Go Ad-Free on CAclubindia with Daily Mobile Updates. Subscribe Now!

Dividend from reserve

CS RAJESH C.CHOUDHARY (ASSISTANT MANAGER) (14607 Points)

03 September 2011

A query- Can a private limited company give dividend out of General Reserve?

Reply
Follow
Share

2 Replies

C.A. Sandeep Wawhal (CA, PGDFM, BCom) (1831 Points)
Replied 03 September 2011

Yes Company can use General Reserve for payment of Dividend as per Company Resolution

Upgrade to CAclubindia Pro. Subscribe Now!

Sathya (Trainee) (32 Points)
Replied 03 September 2011

Yes

As per section 205A (3) the central government rules 1975 - Declaration of dividend out of reserves by fulfilling the following conditions:

2. 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 the 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 utilized to set off the losses incurred in the financial year before any Dividend in respect of preference or equity shares is declared; and

(iii) the balance of reserves after such drawal shall not fall below fifteen per cent of its paid-up share capital.

Finally you have to file Form 1 for electronic mode