Dividend Decisions^341
dividend declared over the three years immediately preceding the
financial year.
However, maintenance of such minimum rate or quantum of dividend is not
necessary if the net profits after tax in a financial years are lower by 20 per
cent or more than the average profits after tax of the two immediately
preceding financial years.
g. A newly incorporated company is prohibited from transferring more than
then percent of its profits to reserves. The 'current profit' for the purpose of
transfer to reserves will be profits after providing for statutory transfer to the
Development Rebate Reserve and arrears of depreciation if any.- Due to inadequacy or absence of profits in any year, dividend may be paid out of
the accumulated profits of previous years. In this context, the following conditions,
as stipulated by the companies (Declaration of Dividend out of Reserves) Rules,
1975, have to be satisfied.
a. The rate of the declared dividend should not exceed the average of the rates
at which dividend was declare by the company in 5 years immediately
preceding that year or 10 per cent of its paid-up capital, whichever is less.
b. The total amount to be drawn from the accumulated profits earned in previous
years and transferred to the reserves should not exceed an amount equal to
one-tenth of the sum of its paid-up capital and free reserves and the amount
so drawn should first be utilized to set off the losses incurred in the financial
year before any dividend in respect of preference or equity shares is declared.
c. The balance of reserves after such drawal should not fall below 10 per cent
of its paid-up capital. - Dividends cannot be declared for past years for which accounts have been adopted
by the shareholders in the annual general meeting. - Dividend declared, interim or final, should be deposited in separate bank account
within 5 days from the date of declaration and dividend will be paid within 30 days
from such a date. - Dividend including interim dividend once declared becomes a debt. While the
payment of interim dividend cannot be revoked, the payment of final dividend can
be revoked with the consent of the shareholders.
Procedural Aspects
The important events and dates in the dividend payment procedure are:
- Board Resolution: The dividend decision is the prerogative of the board of