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Declaration of Interim Dividend by Private Limited Company

Declaration of Interim Dividend by Private Limited Company

A dividend means the profit of a company is distributed among the shareholders in proportion to the amount paid-up on the shares held by them. Dividend is usually payable for a fiscal year after the final accounts are ready and the amount of distributable profit is available. If the dividend is announced and paid in the middle of a financial year, such dividend is known as an interim dividend. As per Companies Act, 2013, the term dividend is also inclusive of interim dividend. In this article, we look at the sources and conditions and procedure for declaring Interim Dividend by a Private Limited Company.

Interim Dividend as Per Companies Act

Section 2(35) of the Companies Act, 2013 describes the interim dividend as follows:

• The dividend for a financial year of the company which is called as a final dividend is payable only if the company declares it at its annual general meeting on the recommendation of the Board of directors.
• The Board of Directors of a firm can declare interim dividend during any financial year or at any time during the period from the closure of the fiscal year till holding of the annual general meeting.

An interim dividend will be declared by the board of directors at any time before the closure of fiscal year, whereas a final dividend is reported by the members of a company at its annual general meeting only if the same has been recommended by the Board of directors of the Company

Payment of Interim Dividend by Board of directors

An interim dividend will be paid by the Board of directors of the private limited company. The interim dividend will be paid out of the surplus in the profits and loss accounts or out of profits of the fiscal year for which such dividend is sought to be declared or out of profit generated in the fiscal year till the quarter preceding the date of declaration of the interim dividend.

In case the private limited company has incurred a loss during the current financial year up to the end of the quarters immediately preceding the date of declaration of the interim dividend, such interim dividend will not be declared at a rate higher than the average dividends declared by the firm during the immediately preceding three financial years.

Procedure for Declaration of Interim Dividend

The steps for the declaration of interim dividend is explained in detail below:

Note on Record Date

Before knowing about the procedure for declaration of interim dividend, you should familiarise with the Record Date. The record rate will be decided for ascertaining who are eligible to receive the interim dividend and to pay the interim dividend. The shareholders who are members as on the record rate will be eligible to receive the dividend as approved by the company.

Step 1: The private limited company will have to be authorised by its articles for the payment of the dividend.

Issue Notice for Holding Meeting

Step 2: According to section 173 of the companies act, the company is required to issue notice for holding the meeting of the board of directors of the company to consider the matter.

Holding the Meetings

Step 3: The company is required to consider the following matters while holding the meetings:

• Ascertain whether the financial position of the Company allows the payment of Interim dividend out of profits available for distribution.
• Recommending the rate and quantum of dividend
• Deciding a record date
• Pass a Board Resolution for approving the payment of dividend
• Pass a Resolution for the opening of an account in the name of the private limited company

Open Account

Step 4: Open the separate account in the name of the company with a scheduled bank and deposit the dividend payable in the prescribed account within five days of the declaration of the dividend.

Payment of Dividend

Step 5: Dividend payable in cash will be paid by or warrant or Cheque or through any other electronic mode to the shareholder entitled for the payment of the dividend.

• The dividend will not be paid by a company in respect of any share except to the registered shareholders of such share or to his order or his banker.
• The dividend will be paid within 30 days from the date of declaration of dividend.

Processing of Unpaid Dividend 

In case a dividend has been declared by a private limited company, but the dividend has not been paid or claimed within one month from the date of the declaration, the company will have to transfer the total amount of dividend which remains unpaid or unclaimed within a week from the date of expiry of the thirty days. The unpaid or unclaimed amount has to be transferred to a special account opened by the company in any scheduled bank, such account is called an Unpaid Dividend Account.

Preparation of Statement for Unpaid Dividend

• The company will have to prepare a statement if the unpaid dividend is transferred to the Unpaid Dividend Account within ninety days of making any transfer of an amount.
• The statement should contain the name, last known address and the unpaid dividend to be paid to each person.
• The statement should be placed on the website of the company and any other websites as approved by the Central Government of India for this purpose.

Interest for Unpaid Dividend Account

If any default is made in for transferring the total amount in Unpaid Dividend Account, it will pay from the date of default, interest will be provided at the rate of twelve percent per annum and the interest accumulated on the amount will make sure the benefit of the members of the firm in proportion to the amount remaining unpaid.

Unpaid Dividend Claiming Procedure

The person desiring to claim the unpaid dividend from the Unpaid Dividend Account of the company will have to apply in prescribed format (IEPF-5)  to the company.

Form_IEPF_5

Unclaimed Money in Unpaid Dividend Account

Any amounts transferred to the unpaid dividend account which remains unclaimed or unpaid for seven years from the date of transfer will be transferred by the company along with interest accrued to the Fund established under section 125. The company will send a statement in the prescribed form of the details of such transfer to the authority which administers the fund, and that authority will issue a receipt to the company as evidence of such transmission.

All shares in respect of dividend have not been paid or claimed for seven consecutive years, or the company will transfer more in the name of Investor Education and Protection Fund along with a statement.

Declaration of Interim Dividend in case of Absence of Profit

For the absence or inadequacy of profits, the dividend will be paid out of the free reserves of the firm. 

• The rate of dividend will not exceed an average of the rates at which dividend  declared in the three years immediately preceding the year
• The amount so drawn will first be utilised to set off the losses incurred in the fiscal year 
• The total amount to be drawn from the accumulated profits will not exceed one-tenth of the sum of the paid-up share capitals 
• The balance of reserves after the withdrawal will not fall below fifteen percent of the paid-up share capitals as appearing in the latest audited financial statement.

Punishment for Failure to Distribute Dividends

A dividend has been declared by a private limited company but has not been paid or the warrant has not been posted within thirty days from the date of declaration to any shareholder entitled, every director of the company will be punishable with imprisonment of two years and with a fine of thousand rupees for every day during which such default continues, and the company will be liable to pay an interest at the rate of eighteen per cent per annum.

In the following cases, no offence under this section 127 of companies act will be deemed to have been committed:

• If the dividend could not be paid because of the operation of any law;
• Directions of the shareholders regarding the payment of dividend cannot be complied with, and the same has been communicated to him
• In case any a dispute regarding the right to receive the dividend
• If the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder; or
• For any other reason, if the dividend is not paid or to post the warrant within the period was not due to any default on the part of the firm.