Company Registration Coimbatore

Payment of dividend by companies

In a going concern the aggregate amount of dividend represents a portion of the next profits which the board of directors proposes to distribute to the shareholders as dividend.

Fixed dividend on preference shares

When a public limited company has issued equity and preference shares and where the company proposes to pay dividend on its shares, the holders of the preference shares would be entitled to get dividend of a fixed amount or at a fixed rate on the paid-up value of the shares in terms of the conditions of the issue of the preference shares and the articles of association. The board of directors will be in a position to recommend a dividend to the shareholders holding equity shares only where the company has distributable net profit after meeting the fixed dividend payable to the preference shareholders.

Dividend proportion to paid-up value

Where a larger amount is paid-up on some shares and accepted by the company in terms of the articles than the amount paid-up on some other shares, the company may pay dividend on the larger amount paid in case the articles authorize the board to do so.

No Dividend Without Providing for depreciation

In terms of section 205, no company can pay dividend in any year without charging depreciation of any earlier year of years. Where a company has not provided for depreciation in any previous year. The company cannot pay dividend in the year following the said previous year unless the outstanding depreciation and the current depreciation are charged in the profit and loss account in the current year.

Position when the company incurred loss in a previous year

Where the company has incurred a loss in any year after charging the depreciation in the profit and loss account and where the company has made a net profit in the next year.

Power of central government to allow dividend before providing for depreciation

In terms of the proviso (c) of section 205(1), the central government has power to allow any company in the public interest to pay dividend for any financial year out of the profits for that year or any previous financial year without providing for depreciation.

New Form for making application under section 205(1)

A new form 23AAC has been prescribed in the amendments made to general rules and forms 1956 by notification dated 10-12-2006.

New Form 23AAC’s Reference to section 205(2)

The reference to section 205(2)(c) below form 23AAC does not appear to be in order as the particulars required in the form seem to be justification for declaring dividend in public interest without providing depreciation which is covered by section 205(1) proviso (c) and not section 205 (2) (c).

Restriction on payment of dividend

A company which has failed to redeem its preference shares as per section 80A is forbidden to pay dividend on its equity shares.

Declaration of dividend out of profits transferred to reserves in past years

Where the current years net profits are not adequate or not available, a company may draw the required amount from reserve created out of transfer of profit in previous years.

  1. The maximum amount that can be drawn from reserves shall not exceed 10% of the paid-up capital and reserves which will first be utilized for writing off loss if any and balance utilized for payment of dividend.
  2. The amount left in the reserves after such drawal shall be atleast 15% of the paid-up share capital.

 

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