Dividends

Companies Act 2017

1. 240. Certain Restrictions on Declaration of Dividend
i. The shareholders in a general meeting can declare a dividend, but they cannot declare more than what
the board of directors recommends.
ii. Dividends cannot be paid from profits earned by selling land, buildings, or other fixed assets unless:
a. The company’s normal business is buying and selling such properties; or
b. Any profit from sales is first used to cover losses from past sales of such assets.
iii. Unrealized gains (like an increase in property value shown in accounts) cannot be used to pay dividends.
2. 241. Dividend to be Paid Only Out of Profits
i. Dividends must be paid from actual profits only.
ii. Dividends can be:
a. In cash, or
b. In kind (but only by distributing shares of listed companies owned by the distributing company).
3. 242. Dividend Not to Be Paid Except to Registered Shareholders
i. Dividend must be paid only to registered shareholders.
ii. It can be paid:
a. Through cheque, warrant, or
b. Electronically into the shareholder’s bank account.
iii. For listed companies, payment must be through electronic transfer.
4. 243. Directors Not to Withhold Declared Dividend
i. Once a dividend is declared, directors cannot withhold or delay its payment.
ii. The chief executive is responsible for paying it properly.
iii. If payment is delayed, the chief executive can face:
a. Jail up to 2 years, and
b. Fine up to 5 million rupees, unless there are valid reasons (like legal restrictions, wrong
shareholder information, etc.).
c. If convicted, the chief executive loses their job immediately and cannot be a director or CEO of
any company for 5 years.
5. 244. Unclaimed Shares, Modaraba Certificates, and Dividend to Vest with the Federal Government
i. If shares, modaraba certificates, or declared dividends stay unclaimed for 3 years, companies must:
a. Send a 90-day notice to owners,
b. Then publish a notice in newspapers.
ii. If no claim is made:
a. The money must be deposited to the Federal Government,
b. Shares or certificates must be handed over to the SECP for sale, and proceeds are credited to
the government.
iii. A special account ("Companies Unclaimed Instruments and Dividend and Investors Education
Account") is maintained.
iv. Owners can claim their money or shares from the SECP within 10 years.
v. If not claimed within 10 years, the right is lost forever.
6. 245. Establishment of Investor Education and Awareness Fund
i. A special Fund is created, called the Investor Education and Awareness Fund, managed by SECP.
ii. It is funded by:
a. Profits earned on unclaimed money,
b. Penalties,
c. Donations, etc.
 iii. The Fund is used for:
a. Educating investors through seminars, media campaigns, and research.
b. Promoting awareness about investing in securities, insurance, Modarabas, etc.
iv. An advisory committee helps guide SECP on using the Fund.
v. The Fund’s accounts must be properly audited.

Companies (Distribution of Dividends) Regulations 2017

1. Short title & Commencement
2. Definitions
3. Period for Making Payment of Dividends
i. CEO is responsible for paying the dividend within the timelines set below:
a. Final dividend: Must be paid within 10 working days after it is declared at the AGM.
b. Interim dividend (if book closure announced): Must be paid within 10 working days from the
start of the book closure. Book closure can only last up to 3 working days.
c. Interim dividend (no book closure): Must be paid within 10 working days from when it is
declared by the board.
ii. Listed companies must start book closure within 15 days of board approval for interim dividends.
4. Manner of Payment of Cash Dividends
i. Companies may appoint a paying agent (like a bank) to distribute cash dividends.
ii. For non-listed companies:
a. Shareholders must choose one of three ways to receive dividend:
1. Direct transfer to bank account
2. Dividend warrant (like a bank order)
3. Crossed cheque
b. Direct Bank Transfer: If shareholders give their bank details, dividends will be credited directly
to their accounts.
iii. If shares are held in book-entry form (i.e., in CDC):
a. The company will get your bank account details directly from the Central Depository Company
(CDC), according to CDC rules.
iv. If shares are in physical form:
a. You (the shareholder) must give your bank account information directly to the company
v. Every shareholder must give valid bank account details (like bank name, branch address, and IBAN),
and:
a. For physical shares: Give it to the company in the way the company asks.
b. For CDC/book-entry shares: Provide it to CDC.
c. These details must match the shareholder’s name (titleholder) and be submitted within the
deadline set by SECP.
d. If shareholders haven’t provided bank details or provided incorrect info, the listed company or
its share registrar must contact them to get the correct details using appropriate methods
(email, call, letter, etc.).
vi. Companies must issue a certificate of dividend payment for record and tax filing.
vii. For listed companies:
a. Dividends must be paid electronically (to bank account) using information obtained from
Central Depository Company (CDC) or directly from shareholders.
viii. Shareholders must provide valid bank details (IBAN, branch address, etc.).
ix. If dividends can't be credited, the paying agent must report back to the company.
x. Special case for foreign investors: If shares are held by custodian banks for foreign investors, the
dividend must reach the investor within 5 working days.
5. Application to Withhold or Defer Payment of Dividend
 i. If a company wants to delay or withhold a dividend, it must:
a. Apply to SECP within the allowed time after declaring the dividend.
b. Inform the concerned shareholder within 15 days explaining why dividend payment is being
held.
c. SECP will give the shareholder a chance to respond before deciding.
6. Circumstances to Withhold Payment of Dividend
i. A company can hold back payment of dividend without SECP permission if:
a. Shareholder has not provided CNIC or identification number.
b. Shareholder (for listed company) has not given proper bank details for electronic payment.
c. Shareholder (for non-listed company) chose bank transfer but gave invalid/incomplete bank
details.
ii. There is a legal embargo (like a court order) on the shareholder's shares.
iii. Process:
a. The company must send notice to the shareholder's registered address and publish an ad in two
newspapers.
b. If three prior notices have already been sent earlier, no new notice is required.

Practice Questions (Past Papers)

Winter 2023

 The maximum amount of dividend that may be recommended:

o The board of GBL has the discretion to recommend a maximum dividend within the range of Rs. 15
billion to Rs. 34 billion (W-1). This decision is contingent on the board’s decision regarding the utilization
of the share premium balance, currently standing at Rs. 19 billion, for the issuance of proposed bonus
shares.
 o
 Requirement for GBL regarding cash dividend payment:
 To facilitate the payment of cash dividends, GBL must adhere to the following requirements:
o Immediately disseminate to the Commission and the PSX the decisions of the board relating to cash
dividend; classified as price-sensitive information. The PSX should be informed before any other release
to any person or media.
o Obtain members’ approval in the annual general meeting (AGM) of GBL.
o Close share transfer books, providing a minimum of seven days’ notice to the PSX before closure. The
maximum annual closure period should not exceed the 30-day prescribed limit.
o Obtain information about designated bank accounts of shareholders from the central depository as per
its regulations, if shares are held in book-entry form.
o For physical shares, contact shareholders directly or through the share registrar through appropriate
means for designated bank account information or verification.
o GBL must distribute the dividend in the following manner:
 Assume the responsibility of paying agent itself or may appoint a paying agent, either directly or
through the share registrar, providing details of entitled shareholders, including names,
identification number, designated bank account information, and net amount for payment;
 Transfer the required net amount to the designated bank accounts of shareholders or the
paying agent’s account or make available to the paying agent through any other means for
onward distribution to the shareholders;
 Ensure timely payments by the paying agent, as per details provided by GBL;
 Inform shareholders through SMS, email, registered post, or other means about the credit of
dividend amount into their designated bank accounts;
 Calculation of dividend amount including the number of shares held, total amount, tax and zakat
deduction, certificate of credit to be provided to the shareholders in electronic form.
o Pay dividends through electronic mode directly into the bank account designated by entitled
shareholders.
o Pay dividends to non-resident shareholders having no designated bank account in accordance with SBP
regulations and within the stipulated time frame.
o In case where shares are held by custodian banks maintaining dividend distribution accounts (checking
or omnibus), the paying agent shall make the dividend payment to be credited to the designated
account as instructed by the custodian bank.
o Pay dividends to registered shareholders or their order in designated bank accounts within ten working
days from the date of declaration i.e., date of the AGM in which the cash dividend was approved.
o Immediately intimate the PSX once all dividends have been credited to the respective bank accounts of
shareholders.
o If GBL has to withhold dividends under the Companies (Distribution of Dividends) Regulations, 2017, pay
the entitled shareholder in the same manner within fifteen working days from the date of removal of
the reason to withhold such cash dividend.
Practice Questions (Study Text)

 The chief executive of TIL is responsible to make payment of final cash dividend by 9th November 20X1 i.e.
within a period of 10 working days from the date of declaration of dividend. The payment of dividend shall be
made in following manner:
o TIL may appoint a paying agent, directly or through its share registrar, and provide it with details of
entitled shareholders including its name, identification number, information pertaining to designated
bank account number and net amount required to be paid into the designated bank account.
o The net amount required to paid into the designated bank accounts of relevant shareholders shall either
be transferred to the bank account of paying agent or made available to paying agent through any other
mean for onward distribution to the entitled shareholders.
o If TIL is listed company, it shall ensure that payments have been made by the paying agent within the
stipulated time period.
o The paying agent shall make payments as per details provided by TIL and in case of failure to transfer
any amount into any designated bank account for any reason, promptly communicate the same to TIL.
o If TIL is unlisted company:
 The paying agent shall provide TIL with confirmations of payments into the designated bank
accounts of relevant shareholders for onward communication to the relevant shareholders.
 If TIL is unlisted company, it shall provide shareholders to whom payment of cash dividend is
made with a certificate containing information for record purposes or for tax filings.
o If TIL is listed company:
 the shareholders shall be intimated by TIL, its share registrar or the paying agent through SMS,
e-mail, registered post or any other mode regarding credit of dividend amount directly into the
designated bank account of the shareholder.
 the calculation of dividend amount including number of shares held, total amount, tax and zakat
deductions and net amount credited into the designated bank account of the shareholder
through the paying agent and a certificate thereof shall be provided to the shareholders in
electronic form through the central depository.
 the central depository shall make available certificate received to the respective shareholders
through central depository system or any other system developed by it, for the purposes of
record and tax filings.

 PIL may withhold or defer the payment of dividend where there is a dispute regarding the right to receive the
dividend, according to provisions of Companies Act, 2017.
 PIL shall intimate the respective shareholders of its intention to withhold dividend amount and reason thereof
within 15 days from the date of declaration.
 PIL shall apply to the Commission, within 45 days from the date of declaration of the dividend, for approval
along with payment of fee.
 The Commission, after providing an opportunity to the shareholder or person aggrieved, may allow the company
to withhold or defer the payment of dividend.
 PIL shall pay the dividend to the entitled shareholder(s) within a period of 15 working days from the date of
removal of reason to withhold such cash dividend

 SIL may on its own and without making an application to the Commission withhold the payment of dividend to
Asim Habib as restriction has been placed by the competent authority in respect of shares held by the entitled
shareholder.
 However, SIL shall send notice to Asim Habib on his registered address and advertisement in this regard shall be
published in two newspapers having nationwide circulation within 15 working days of declaration.
 No notice as above will be required if SIL has already sent three consecutive notices as above in the past.