CORPORTAE ACCOUNTABILITY – III – DIVISIBLE PROFITS AND DIVIDENDS

CORPORTAE ACCOUNTABILITY – III – DIVISIBLE PROFITS AND DIVIDENDS

Dividend is the return on the share Capital subscribed for and paid to a company by its shareholders.

As per Section 217 (1) (c) there shall be attached to every balance sheet laid before a company in general meeting, a report by its Board of directors, with respect to the amount, if any, which it recommends should be paid by way of dividend.

It is declared by shareholders at Annual General Meeting by Shareholders.

Interim Dividend – Section 2(14A)

"Dividend" includes any interim dividend.

Both interim and final dividend when declared become debt and are payable within 30 days of declaration

Section 78

Where a company issues securities at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those securities shall be transferred to an account, to be called "the securities premium account"; and the provisions of this Act relating to the reduction of the securities capital of a company shall, except as provided in this section, apply as if the securities premium account were paid-up securities capital of the company.

Section 78 does not permit the amount standing to the credit of the Securities Premium Account to be distributed by way of dividend to the shareholders.

Dividend to be paid only out of profits

Section 205(1) - No dividend shall be declared or paid by a company for any financial year except out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2) or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with those provisions and remaining undistributed or out of both or out of moneys provided by the Central Government or a State Government for the payment of dividend in pursuance of a guarantee given by that Government:

Depreciation – Section 205(2)

Depreciation shall be provided either-

(a) to the extent specified in section 350; or

(b) in respect of each item of depreciable asset, for such an amount as is arrived at by dividing ninety-five per cent of the original cost thereof to the company by the specified period in respect of such asset; or

(c) on any other basis approved by the Central Government which has the effect of writing off by way of depreciation ninety-five per cent of the original cost on the expiry of the specified period

(d) as regards any other depreciable asset for which no rate of depreciation has been laid down, on such basis as may be approved by the Central Government by any general order published in the Official Gazette or by any special order in any particular case.

Transfer of Profits to Reserve - Section 205(2A)

No dividend shall be declared or paid by a company for any financial year out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2), except after the transfer to the reserves of the company of such percentage of its profits for that year, not exceeding ten per cent, as may be prescribed:

Provided that nothing in this sub-section shall be deemed to prohibit the voluntary transfer by a company of a higher percentage of its profits to the reserves in accordance with such rules as may be made by the Central Government in this behalf.

Unpaid dividend to be transferred to special dividend account – Section 205A.(1)

Where, after the commencement of the Companies (Amendment) Act, 1974, a dividend has been declared by a company but has not been paid, or claimed, within thirty days from the date of the declaration, to any shareholder entitled to the payment of the dividend, the company shall, within seven days from the date of expiry of the said period of thirty days, transfer the total amount of dividend which remains unpaid or unclaimed within the said period of  thirty days, to a special account to be opened by the company in that behalf in any scheduled bank, to be called "Unpaid Dividend Account of .......... Company Limited/ Company (Private) Limited"

Where, owing to inadequacy or absence of profits in any year, any company proposes to declare dividend out of the accumulated profits earned by the company in previous years and transferred by it to the reserves, such declaration of dividend shall not be made except in accordance with such rules as may be made by the Central Government in this behalf, and, where any such declaration is not in accordance with such rules, such declaration shall not be made except with the previous approval of the Central Government Section 205A(3)

No dividend shall be payable except in cash provided that nothing in this sub-section shall be deemed to prohibit the capitalization of profits or reserves of a company for the purpose of issuing fully paid-up bonus shares or paying up any amount, for the time being unpaid, on any shares held by the members of the company – Section 205(3)

Dividend not to be paid except to registered shareholders or to their order or to their bankers – Section 206

Right to dividend, rights shares, and bonus shares to be held in abeyance pending registration of transfer of shares – Section 206A

Penalty for failure to distribute dividends within thirty days – Section 207

Every director of the company shall, if he is knowingly a party to the default, will be punishable with simple imprisonment for a term which may extend to three years and shall also be liable to a fine of one thousand rupees for every day during which such default continues and the company shall be liable to pay simple interest at the rate of eighteen per cent per annum during the period for which such default continues.

Establishment of Investor Education and Protection Fund – Section 205C

There shall be credited to the Fund the following amounts, namely:-

     (a) amounts in the unpaid dividend accounts of companies

     (b) the application moneys received by companies for allotment of any securities and due for refund

     (c) matured deposits with companies

     (d) matured debentures with companies

     (e) the interest accrued on the amounts referred to in clauses (a) to (d)

     (f) grants and donations by the Central Government, State Governments,   companies or any other institutions for the purposes of the Fund

     (g) the interest or other income received out of the investments made from the Fund.

If the company has incurred any loss in any previous financial year or years, which falls or fall after the commencement of the Companies (Amendment) Act, 1960 then, the amount of the loss or an amount which is equal to the amount provided for depreciation for that year or those years whichever is less, shall be set off against the profits of the company for the year for which dividend is proposed to be declared or paid or against the profits of the company for any previous financial year or years, arrived at in both cases after providing for deprecation in accordance with the provisions of sub-section (2) or against both- Section 205(b).

Any dividend payable in cash may be paid by cheque or warrant sent through the post directed to the registered address of the shareholder entitled to the payment of the dividend, or in the case of joint shareholders, to the registered address of that one of the joint shareholders which is first named on the register of members, or to such person and to such address as the shareholder or the joint shareholders may in writing direct – Section 205 (5) (b)