Hello,
At 1st Apr 2008 XYZ ltd have Cumulative Prefrence Share in there Balance sheet which would be reedem on 30th Sep 2008, but company has not sufficeient fund therefore Co. Could not redeem them.
Now i have a question :- Is Company is liable for paying dividend for last half year.(1 oct to 31 Mar 09).? or Prefrence share holders has right to get interest for that period.
Hi Piyush,
As per my opinion Company is liable to pay dividend to preference shareholders for last half year. (1 oct to 31 Mar 09) and there is no question of payment of interest to preference shareholders. Reason being preference share capital is a part of paid up capital of the company and not in the nature of loan.
Basic difference between dividend and interest
Dividend is paid on the company's paid up share capital including equity and preference shares whereas interest is generally paid on debentures, loans and borrowings. Dividend is an appropriation of profit whereas interest is considered charge against profit.
For your information only:
A company, which has failed to redeem its preference shares as per section 80A, so long as such failure continues, shall not declare any dividend on its equity shares. [Section 205(2B)]
Best Regards
CAclubindia
