Procedure for Declaring Dividend

Dividend under the terms of Companies Act, 2013 refers to the portion of the profit that is received by the shareholders from the company’s net profit, which is by and large legally accessible for distribution among the members. Consequently, dividend is a return on the Investment in share capital that is subscribed for and paid to its shareholders by a company. In this article, we look at the different types of dividend, sources and conditions and procedure for declaring dividend.

Dividend as per Companies Act, 2013

Dividend is the share of profit of a company, distributed among shareholders of a company. Dividend can be paid on both equity or preference shares, based on a fixed rate or at a rate determined by the shareholders of a company. As per Companies Act, 2013, the term dividend is also inclusive of interim dividend.

Types of Dividend

Dividend can be classified into the following two types broadly:

Interim Dividend

Dividend announced and paid by the company during a financial year before determining the full financial year earnings are called as interim dividend. As, the dividend is announced and paid in the middle of a financial year, its called as interim dividend.

Final dividend

A dividend is considered to be a final dividend if it is declared at the Annual General Meeting of the company. Final dividend becomes an enforceable debt of the company once it is declared.

Process for Declaring Dividend

The procedure for declaration of dividend is as follows: Note: Dividend can be declared from the profit of the current year after providing for depreciation or from the profit of the previous financial year or years, after providing for depreciation for such years. Step 1: The company in a Board Meeting decides on the amount of dividend that would be declared and paid. Step 2: Company issues notice of general meeting with intent to declare dividends. Step 3: General meeting is conducted and the resolution for declaring dividend is passed along with record date.

In the event of the annual dividend, the persons who are considered members as on the date of the annual general meeting shall be eligible to receive the dividend as the dividend is accepted by the members on the day when annual general meeting is held.
Listed companies are required to inform the Stock Exchange in progress of closing the Register of members for payment of dividend declared during the annual general meeting for the determination of names of shareholders entitled to dividend.

Step 4: Once the resolution is passed for declaring dividend, the dividend is paid to the shareholders.

Draft Resolution for Declaring Dividend

RESOLVED THAT as per the recommendation of the Board of Directors of the Company, the approval of the members of the Company be and is hereby granted for payment of dividend (Rate of dividend) per share on the equity share capital of the company for the financial year ended on 31^st March,_____ and the same be paid to all the members whose names appear in the Register of Members as on ______ (record date). "RESOLVED THAT for the purpose of giving effect to this resolution, Mr./Ms. ………………….. of the Company be and is hereby authorised, on behalf of the Company, to do all acts, deeds, matters and things as deem necessary, proper or desirable.”

Dividend Payment

Once the dividend it declared, the amount of dividend declared must be transferred to a distinct bank account. Payment of the same must be done within 30 days of declaration and all unpaid dividend must be transferred to a special account.

Penalty for Not Paying Declared Dividend

If a dividend declared by a company has not been paid within a period of thirty days from the date of declaration to any shareholder, then the Directors of the company are punishable with imprisonment which may widen to two years and with fine which will not be less than one thousand rupees for every day during which such default continues. Further, the company will be liable to pay simple interest at the rate of 18 % per annum during the period for which such delay in dividend payment continues.

Learn more about declaring dividend in a company.