Dividend refers to a reward, cash or otherwise, that a company gives to its shareholders.
Dividends can be issued in various forms, such as cash payment, stocks or any other form. A
company’s dividend is decided by its board of directors and it requires the shareholders’
approval. However, it is not obligatory for a company to pay dividend. Dividend is usually a
part of the profit that the company shares with its shareholders.
As per Section 2(35) of Companies Act, 2013 defines the term as including any interim
dividend. Dividend is basically the share of profit distributed among shareholders. Ordinary
meaning of dividend is a share of profits, whether at a fixed rate or otherwise, allocated to
holders of shares in a company. Dividend can be paid on Equity or preference shares both.
The process of Dividend Declaration as per companies act 2013
Company shall recommend in General Meeting the amount of dividend which it can
decide in Board Meeting.
The resolution for Dividend in the Notice of General Meeting shall be mentioned by
the company
General Meeting will hold by the company:
Declaration of the dividend is Ordinary Business.
Ordinary Resolution for the declaration of a dividend will be passed in the General
Meeting.
It must be paid within 30 days once the dividend is declared.
Section 124 of Companies Act 2013: Unpaid Dividend Account
Section 124(1) of Companies Act 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.
Section 124(2) of Companies Act 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 website of the company, if any, and also on any
other website approved by the Central Government for this purpose, in such form, manner
and other particulars as may be prescribed.
Section 124(3) of Companies Act If any default is made in transferring the total amount
referred to in sub-section (1) or any part thereof to the Unpaid Dividend Account of the
company, it shall pay, from the date of such default, interest on so much of the amount as has
not been transferred to the said account, at the rate of twelve per cent per annum and the
interest accruing on such amount shall ensure to the benefit of the members of the company
in proportion to the amount remaining unpaid to them.
Section 124(4) of Companies Act Any person claiming to be entitled to any money
transferred under sub-section (1) to the Unpaid Dividend Account of the company may apply
to the company for payment of the money claimed.
Section 124(5) of Companies Act Any money transferred to the Unpaid Dividend Account of
a company in pursuance of this section which remains unpaid or unclaimed for a period of
seven years from the date of such transfer shall be transferred by the company along with
interest accrued, if any, thereon to the Fund established under sub-section (1) of section 125
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.
Section 124(6) of Companies Act All shares in respect of which dividend has not been paid
or claimed for seven consecutive years or more shall be transferred by the company in the
name of Investor Education and Protection Fund along with a statement containing such
details as may be prescribed: Provided that any claimant of shares transferred above shall be
entitled to claim the transfer of shares from Investor Education and Protection Fund in
accordance with such procedure and on submission of such documents as may be prescribed.
How dividends are paid
A dividend is the distribution of some of a company's earnings to a class of its shareholders.
Dividends are usually paid in the form of a dividend check. However, they may also be paid
in additional shares of stock. The standard practice for the payment of dividends is a check
that is mailed to stockholders a few days after the ex-dividend date, which is the date on
which the stock starts trading without the previously declared dividend.
The alternative method of paying dividends is in the form of additional shares of stock. This
practice is known as dividend reinvestment; it is commonly offered as a dividend
reinvestment plan (DRIP) option by individual companies and mutual funds. Dividends are
always considered taxable income by the Internal Revenue System (IRS) (regardless of the
form in which they are paid).
