"AJSH & Co LLP"    is now    "Mercurius & Associates LLP" "AJSH & Co LLP"    is now    "Mercurius & Associates LLP" "AJSH & Co LLP"    is now    "Mercurius & Associates LLP"

Declaration and Payment of Dividends


Every person wants to earn huge sum of money and investing in the shares is one of the way for earning the same. Peoples invest money with an expectation to earn high return on the investment they made and shareholders measure their return by way of dividends.

As per section 2(35) of Companies Act, 2013 dividend includes Interim dividend.

  • Dividend is basically the share of profit which is not retained in the business and distributed among shareholders.
  • Dividend is distributed among shareholders in proportion to the amount paid-up on the shares held by the shareholders.

 Types of Dividends

  • Interim Dividend: An interim dividendis a distribution to shareholders that has been both declared and paid before a company’s annual general meeting (AGM) and the release of final financial statements.
  • Final Dividend: Dividend is said to be a final dividend if it is declared at the annual general meeting of the company. Final dividend once declared becomes a debt enforceable against the company.

Sources of Dividends
As per companies Act, 2013 Company is allowed to paid dividend by the following ways:

  • By paying dividends out of the current year profits (profit here means Profit after tax) of the company.
  • By utilizing previous years undistributed or accumulated profits.
  • By the amount given by the Central Government & State Government for the payment of dividend in relation to the guarantee provided by the Government.

Conditions to be fulfilled before Declaration of the Dividend

  • Company must provide for the Depreciation to all its depreciable assets;
  • Company may transfer such percentage of profits as it may consider appropriate to the reserves for the financial year;
  • Company must provide for the carried over losses and depreciation of previous years from the profits of current year; and
  • Company shall not declare or pay dividends out of its reserves, other than free reserves.

Restrictions on declaration of Dividend out of Surplus reserves:

  • Company can declare dividends out of Surplus at the average rate of last dividend declared of last three preceding years.( This restriction will not apply if company hasn’t declared dividends in the last three preceding years);
  • Company shall not withdraw from accumulated profits more than 1/10th of Paid up share capital & free reserves as appearing in the last audited financial statements;
  • The amount withdrawn from such accumulated profit first must be utilized for the set off of losses incurred in the financial year in which dividend is declared; and
  • Balance amount of reserves after such withdrawal shall not fall below 15% of paid up share capital as appearing in the latest audited financial statements.

Procedure of Declaration & Payment of Dividends:

  • Issue at least 7 days clear notice for the meeting of BOD in accordance with the Section-173 of Companies Act, 2013;
  • In case of listed company has to inform Stock exchange where the securities are listed at least 2 working days before the Board meeting;
  • In case of listed companies, give 7 days’ notice of closure of book to the stock exchanges. Publish notice of book closure in a local newspaper circulating in the district in which the registered office of the company is situated at least seven days before the date of commencement of book closure;
  • In case of Unlisted Companies, It is not necessary to close register, General Meeting can decide the ‘Cut off’ date or could be date of General Meeting;
  • Company recommends dividend in Board Meeting and approved by the shareholders in general meeting;
  • Resolution for dividend should be mention by the company in the Notice of General Meeting;
  • Company has to pass ordinary resolution for declaration of dividend in the General meeting;
  • Once Dividend declared in must be paid within 30 days;
  • Dividend amount shall be deposited in a separate bank Account;
  • Amount remaining unclaimed after expiry of 7 days from the date of expiry of period of 30 days from the date of declaration of dividend to be transferred to unpaid dividend account;
  • Company has to pay Interest @12%; and
  • If amount of dividend remain unclaimed for seven years the company should transfer such amount to investor protection fund.

No dividend shall be paid by a company in respect of any share therein except to the registered shareholder of such share or to his order or to his banker and shall not be payable except in cash.

Dividend declared out of current year profits & accumulated profits to be charged with an additional tax rate of 15%.

Here, at AJSH we do assist our clients in annual compliances of companies and related services. We will be happy to guide you in availing this one-time benefit. If you have any questions or want to know more about declaration and payment of dividends, kindly contact us.


Ready to assist with any of your queries or concerns


Ready to assist with your Queries