Companies Act, 2013 Procedure

Procedure for Declaration of Dividend

Napur Rathore
Nupur Rathore

Published on: Oct 1, 2020

Introduction

Dividend includes any interim dividend.

Dividend shall be declared or paid by a company for any financial year only

  • out of the profits of the company for that year arrived at after providing for depreciation, or
  • out of the profits of the company for any previous financial year or years arrived at after providing for depreciation and remaining undistributed, or
  • out of both a and b, or
  • out of money provided by the Central Government or a State Government for the payment of dividend by the company in pursuance of a guarantee given by that Government.

Mandatory Requirements

  1. In the event of inadequacy or absence of profits in any year, a company may declare dividend out of free reserves subject to the fulfillment of the following conditions, namely
    • The rate of dividend declared shall not exceed the average of the rates at which dividend was declared by it in the three years immediately preceding that year. This shall not apply to a company, which has not declared any dividend in each of the three preceding financial year.
    • The total amount to be drawn from such accumulated profits shall not exceed one-tenth of the sum of its paid-up share capital and free reserves as appearing in the latest audited financial statement.
    • The amount so drawn shall first be utilised to set off the losses incurred in the financial year in which dividend is declared before any dividend in respect of equity shares is declared.
    • The balance of reserves after such withdrawal shall not fall below fifteen per cent of its paid up share capital as appearing in the latest audited financial statement. [Rule 3 of the Companies (Declaration and Payment of Dividend) Rules, 2014]
  2. Company shall declare dividend only after carrying over previous losses and depreciation not provided in previous year or years are set off against profit of the company for the current year.

Following Procedure is to be followed

  1. Convene a Meeting of Board of Directors [As per section 173 & SS-1]
    • Listed Companies shall give prior intimation to Stock Exchange about the Board Meeting in which recommendation of dividend is to be considered, at least 2 working days in advance, excluding the date intimation and date of meeting. [Regulation 29 of the SEBI (LODR) Regulations, 2015]
    • Listed Companies shall close the trading window as per their Code of Conduct and shall give prior intimation about this to the Stock Exchange. [SEBI (PIT) Regulation, 2015]
    • Issue Notice of Board Meeting to all the Directors of Company at their addresses registered with the Company, at least 7 days before the date of Board Meeting. A shorter notice can be issued in case of urgent business.
    • Attach Agenda, Notes to Agenda and Draft Resolution with the Notice.
    • Hold a meeting of Board of Directors of the Company and pass the necessary Board Resolution
      • to consider recommendation of dividend to Shareholders at the Annual General Meeting of the Company.
      • to recommend the quantum of final dividend to be declared at the next annual general meeting and the source of funds for the payment thereof and amount to be transferred from the current profits to reserves as the board may deem appropriate.
      • to close the register of members and decide the book closure period or record date.
      • to open a separate Bank Account in a Scheduled Bank for making payment of Dividend to the Shareholders and for keeping unpaid Dividend.
      • to fix day, date, time and venue for holding Annual General Meeting (AGM) of the Company.
      • to approve the draft notice of AGM along with explanatory statement annexed to the notice as per requirement of the Section 102 of the Companies Act, 2013.
      • to authorize the Director or Company Secretary to sign and issue notice of AGM and to do such acts, deeds and things as may be necessary to give effect to the Board’s decision.
      • to delegate authority to Company Secretary or any one director of the company to sign, certify and file the required form with Registrar of Companies and to do all such acts and deeds as may be necessary to give effect to the Board’s decision.
    • Listed Company shall submit the disclosure of Board Meeting within 30 minutes from the conclusion of the Board Meeting and post the same on the website of the Company within 2 working days. [Regulation 30 & 46(3) of the SEBI (LODR) Regulations, 2015]
    • Prepare and Circulate Draft Minutes within 15 days from the conclusion of the Board Meeting, by Hand/Speed Post/Registered Post/Courier/E-mail to all the Directors for their comments. [Refer the Procedure for Preparation and Signing of Minutes of Board Meeting]
  2. Intimation to Stock Exchange about Book Closure [Regulation 42 of the SEBI (LODR) Regulation, 2015]
    Listed Companies shall give advance notice of at least 7 working days (excluding the date of intimation and book closure) to the Stock Exchange about record date and specifying the purpose of record date.
  3. Publishing Advertisement in Newspaper for Book Closure
    • Companies shall give 7 days’ advance notice about Book Closure by way of advertisement at least once in a vernacular newspaper in the principal vernacular language of district and having a wide circulation in the place where registered office of the company is situated and at least once in English language in an English newspaper circulating in that district and having wide circulation in the place where registered office of the company is situated.
    • Private Companies shall serve notice on all members of the company not less than 7 days prior to closure of the register of members or debenture holders or other security holders.
    • Company shall publish this notice on the website of the company.
  4. Convene Annual General Meeting [Section 96 and SS-2]
    • Notice of Annual General Meeting shall be given at least clear 21 days before the actual date of a AGM in writing, by hand or by ordinary post or by speed post or by registered post or by courier or by facsimile or by e-mail or by any other electronic means or a Shorter Notice can be issued with the consent of at least majority in number and ninety five percent of such part of the paid up share capital of the company giving a right to vote at such a meeting in accordance with Section 101.
    • Notice will be sent to all the Directors, Members, Auditors of Company, Secretarial Auditor, Debenture Trustees and to others who are entitled to receive the notice of the AGM.
    • Notice shall specify the day, date, time and full address of the venue of the Meeting and contain a statement on the business to be transacted at the Meeting.
    • Hold the Annual General Meeting on fixed day and pass Ordinary Resolution to declare dividend.
    • Listed Companies shall disclose the proceedings of AGM to the Stock Exchange within 24 hours from the conclusion of General Meeting and same shall be posted on the website of the company within 2 working days. [Regulation 30 and 46(3) of the SEBI (LODR) Regulations, 2015]
    • Listed Companies shall submit to the stock exchange the details of the voting results within 48 hours from the conclusion of the meeting and post the same on the website of the Company. [Regulation 44 of the SEBI (LODR) Regulations, 2015]
    • Prepare the minutes of General Meeting, get them signed and compile accordingly. [Refer the Procedure for Preparation and Signing of Minutes of General Meeting].
  5. Preparation of List of Eligible Shareholders
    Company shall prepare the list of shareholders who are eligible to receive the dividend.
  6. Opening of Bank Account and Payment of Dividend
    • Company shall open a separate Bank Account in a Scheduled Bank for payment of dividend and credit the said bank account with the total amount of dividend payable within 5 days of declaration of dividend.
    • Company shall make payment of dividend by way of cheque or warrant or in any electronic mode to the shareholder entitled to receive the dividend within 30 days from the date of declaration of dividend.
    • Listed Companies shall use an electronic mode to make the payment but where it is not possible to use the electronic facility then “payable-at-par” warrants or cheques may be issued and the same shall be sent by speed post if the dividend amount exceeds Rs. 1,500/-.
    • If any share is in the name of IEPF authority then company shall remit the amount into the specific account of the IEPF authority maintained in PNB and the details shall be furnished in Form IEPF 7 to the IEPF authority within 30 days from the date of remittance.
  7. Unpaid Dividend Account
    Where 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 to a special account to be opened by the company in that behalf in any scheduled bank to be called the Unpaid Dividend Account.
    The company shall, within a period of ninety days of making any transfer of an amount under sub-section (1) to the Unpaid Dividend Account, prepare a statement containing the names, their last known addresses and the unpaid dividend to be paid to each person and place it on the web-site of the company.
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