‘Meaning of Dividend Dr. Sameera Races Dividend means the share of the company’s profits distributed among the members. The corporate earnings and profits not retained in the business, and when distributed among, shareholders, are known as ‘dividend’, Profits which can legally be distributed to the shareholders of the company in the form of dividend are called as “divisible profits’. Divisible profits imply the profits which the directors consider should be distributes after making provision for past losses, for transfer to reserve or for other purposes. Sources out of which Dividend to be Paid (S.123) 1. Current Profits 2. Past reserves created out of profits or eredit balance in the profit and loss account brought forward. 3. Out of moneys provided by Central Government or a State Government. Out of Current Profits Dividend may be declared out of the profits of the company for the current year after providing for depreciation as per Schedule II. The company may transfer such percentage of its profits for that financial year as it may consider appropriate to the reserves of the company. Out of Past Reserves: No dividend shall be declared or paid by a company from its reserves other than free reserves. In case of inadequacy or absence of profit a company may declare dividend subject to following condition (Declaration and Payment of Dividend Rules, 2014) 1. 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. 2. the total amount to be drawn from such profit 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. 3. the amount so drawn shall first be utilized to set off the losses incurred in the financial year in which dividend is declared before any dividend in the respect of equity shares is declared, 4, the balance of reserves after such withdrawal shall not fall below 15% of its paid up share capital as appearing in the latest audited financial statement.5. no company shall declare dividend unless carried over previous losses and depreciation not provided in previous years are set off against profit of the company of the current, year. Money by Government ‘A company can also declare dividends out of the money provided by the Central or State Government for payment of such dividend in pursuance of a guarantee given by that Government. Dividend Payable to Whom? Section 123(5) provides that no dividend shall be paid by a company in respect of any share therein except to the registered shareholder of such share or to his order or to his banker. Payment of dividend in case of sale of shares: The dividend is required to be paid to the registered shareholder. Dividend is to be paid in Cash No dividend shall be payable except in cash [123(5)]. Any dividend payable in cash may be paid by cheque or warrant or in any electronic mode to the shareholder entitled to the payment of the dividend. Time within which dividends to be paid The amount of dividend, including interim dividend shall be deposited in a scheduled bank in a separate account within 5 days from the date of declaration of such dividend. [123(4)] Company has to pay dividend, which is declared to the shareholder entitled therein within 30 days from its declaration. Interim Dividend A part of profits may be distributed before the accounts are finally passed and the declaration of the dividend sanctioned in the annual general meeting. Such dividends are called “Interim dividend”. Unpaid Dividend Where a dividend has been declared by a company but has not been paid or claimed within 30 days from the date of declaration to any shareholder entitled to the payment of the dividend the company shall within 7 days from the expiry of the said period of 30 days transfer the total amount of dividend which remains unpaid or unclaimed within thesaid period of 30 days to a special account to be opened by the company any scheduled bank to be called “Unpaid Dividend Account”. Investor Education and Protection Fund [124(5)] Any money transferred to the Unpaid Dividend Account of a company which remains unpaid or unclaimed for a period of 7 years from the date of such transfer shall be transferred by the company along with interest thereon to the Fund established and the company shall send a statement in the prescribed form of the details of such transfer to the Authority which administers the said Fund and that Authority shall issue a receipt to the company as evidence of such transfer. Administration of the Fund:- The Central Government shall constitute, a Authority for administration of the Fund consisting of a chairperson and such other members, not exceeding 7 and a Chief Executive Officer. The Authority shall administer the Fund and maintain separate accounts and other relevant records in relation to the Fund in such form as prescribed after consultation with the Comptroller and Auditor-General of India.