What Is Dividend?

What Is Dividend?

The consideration paid to the shareholder on their investment in the company is called Dividend. In other words the profit which is allocated to the shareholder as a return of money investment is called Dividend.

Generally the directors of a company are em-powered to fix and declare the dividend in the annual general meeting, because they are very familiar with the financial offer of the company.

Source Of Dividend

According to sec-123 of the Companies Act 2013 dividend may be declared out of the following 3 sources that is:

Out of Current Year Profit

Generally dividend is declared out of the current year profit of the company. It must transfer a certain percentage of profit to the general reserve before declaration of dividend. It also adjusts the current year defriciation against current year profit.

Out Of past reserve

According to sec-123 of the Companies Act 2013, dividend can be declared out of past year reserve or profit as per guideline of central govt. Dividend also may be declared out of accumulated profit in accordance with the provision of schedule (II) in Companies Act 2013.

Out Of money provided by Govt.

Dividend can be declared out of the money provided by the central Govt. for payment of such dividend. In this situation it must follow guidelines of the central Govt for declaring a dividend.

Legal Provisions for declaring dividend

The Companies Act 2013 provides certain provision in relation to dividend in sec-123, which is known as legal provision for declaring dividend. Such provision are:

1.It must be declared out of divisible profit or money provided by the central government.

2. It can be utilised for issuing bonus shares or any amount due to shareholders.#3.It should be declared only to the registerd shareholders.

4.There must be certain provisions in articles and memorandum of company for payment of dividend.

5.It can’t be paid out of capital.

6.The rate of dividend must be fixed and proposed by the director.

7.It should be declared by shareholders in AGM.

8.The declaration should be paid on the calls in advance.

Provision Relating to Separate Bank

Generally dividend is not paid in the form of cash but the same is pay through a bank account. The amount payable to the shareholder as dividend is transferred to the dividend banking account within 30 days of declaration. For this purpose most important provision followed by company act are:

1.According to sec-124 of companies account 2013 all dividend banking accounts should be open within 30 days declaration.

2.If the company fails to do so it must transfer the amount due to unclaim dividend accounts within 7 days of expiry of 30 days.

3.The amount of unpaid or unclaimed dividend should be transferred to the investor education and protection fund.

4.The dividend should be paid to the shareholder out of a dividend banking account.

5.The corporate dividend tax 10% should be changed on dividend paid or declared to the shareholder.

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