Dividend
Week 11
Company Law
Dividend
Dividends are payments made to
shareholders by a company, out of
its distributable profits.
Implied power to declare dividend
Unless there are specific restrictions in the
company’s memorandum and articles (e.g.
association not for profit prohibits the
payment of dividend to its members), every
company has an implied power to use its
profits to pay dividends to its shareholders.
Types of Dividend
Interim Dividend
Paid before the end of the year.
Final Dividend
Paid after the end of the year
Approval and Declaration of
Interim Dividend:
1. Interim dividend is approved by
Board of Directors.
2. Interim dividend is deemed to have
been declared on the date of: a.
commencement of book closure to
determine entitlement of dividend or
b. board meeting (if books were not
closed for such purpose)
3. Interim dividend is paid within 30
days of its declaration.
Approval and Declaration of
Final Dividend
1. Final Dividend is recommended by
Directors but approved/declared by
Members in general meeting. However,
members cannot approve dividend in
excess of amount recommended by
Directors.
2. Final dividend is deemed to have been
declared on the date of the general
meeting in which it is approved.
3. Final dividend is paid within 30 days of
its declaration.
Restriction on Declaration
of Dividend
No dividend shall be declared or paid by a
company:
1. out of the profits from the sale or disposal of
any immovable property or assets of a capital
nature unless: (i) it is ordinary business of
company to purchase and sell such property or
assets, and (ii) company has set-off such profits
against losses arising from sale of such
property or assets.
2. out of unrealized gain on investment property
credited to profit and loss account.
3. Members can only accept, reject and reduce
dividend.
Restriction on Declaration
of Dividend
ABC Limited incorporated on July 1, 2015 to
manufacture and trade soaps. By the end of the
first half of the year it accumulated operational
loss of Rs. 4 million and made gain of Rs. 52
million on sale of a plot of land meant for a
manufacturing facility. The company have Rs. 48
million (Rs. 52 - 4 million) available as
undistributed profit, but in this financial year, i.e.
by June 30, 2016, the company cannot use it for
distribution of dividend, as the company is not in
the business of buying and selling of plot of land
PAYMENT OF DIVIDEND
Manner of Payment: Any dividend may be
paid by a company either in cash or in kind.
in cash: Dividend payable in cash may
be paid by cheque or warrant or in any
electronic mode. However, in case of a
listed company, dividend payable in cash
shall be paid through electronic mode into
the bank account specified by
shareholder.
in kind: The payment of dividend in kind
shall only be in the form of shares of
listed company held by the distributing
company.
PAYMENT OF DIVIDEND
To Whom to Pay: Any dividend declared
by a company must be paid to its
registered shareholders or to their order.
Consequences of Delay in Payment: If
dividend is not paid within 30 days of its
declaration, chief executive of company
shall be:
1. fined for an amount upto five million rupees,
and
2. imprisonment for a term upto two years, and
3. ineligible to become a director or chief
executive of any company of next five years.
Withholding of Dividends:
In following cases, the company may withhold dividend after
obtaining prior approval of Commission within 45 days of its
declaration:
1. When there is a dispute regarding right to receive
dividend.
2. When the dividend is lawfully set-off by the company
against sum recoverable from shareholders.
3. When a shareholder has given instructions to company
regarding payment of dividend and those instructions
cannot be complied with.
4. When dividend cannot be paid because of operation of
law.
A company may also withhold the payment of dividend of a
member if member has not provided the complete information
or documents as specified by the Commission.
Thank you.
