by Dividend refers to the payment made by a company to its shareholders out of its profits or reserves. It is a distribution of profits by the company to its shareholders, and it is usually made in proportion to the number of shares held by the shareholders.
Dividends can be paid in cash, in the form of bonus shares, or in any other form as approved by the company’s Board of Directors. The payment of dividends is subject to various rules and regulations under the Companies Act, 2013, and the Articles of Association of the company.
The following are some of the key aspects of dividends that every shareholder should know:
Types of Dividends
There are two types of dividends that can be declared by a company: interim dividend and final dividend. An interim dividend is paid during the financial year, before the final accounts are prepared, while the final dividend is paid after the final accounts have been prepared.
There are mainly two types of dividends that a company can declare: interim dividend and final dividend.
Interim Dividend
An interim dividend is a dividend declared by the company during its financial year, before the final accounts are prepared. It is generally paid to the shareholders to distribute the profits of the company among them before the final dividend is paid. The Board of Directors may declare the interim dividend if the company has made significant profits during the year or if there is a need for funds for any specific purpose.
The payment of interim dividend is subject to the availability of profits or reserves of the company. The Board of Directors may declare an interim dividend out of the profits earned during the financial year or out of the free reserves of the company.
The interim dividend is usually paid within a few weeks of the declaration, and it is paid to the shareholders whose names appear on the register of members on the record date decided by the Board of Directors.
Final Dividend
A final dividend is a dividend declared by the company after the final accounts have been prepared. It is generally paid to the shareholders at the Annual General Meeting after the approval of the shareholders. The Board of Directors recommends the final dividend based on the profits earned during the financial year, and the shareholders approve the dividend at the Annual General Meeting.
The payment of the final dividend is subject to the availability of profits and reserves of the company. The Board of Directors may recommend a final dividend out of the profits earned during the financial year, and after the appropriation of profits to reserves, the remaining profits may be used for the payment of the final dividend.
The final dividend is paid to the shareholders whose names appear on the register of members on the record date decided by the Board of Directors. The payment of the final dividend is usually made within 30 days of the approval by the shareholders at the Annual General Meeting.
Declaration of Dividend
The declaration of dividend is done by the Board of Directors of the company, and it must be approved by the shareholders at the Annual General Meeting. The Board of Directors may recommend a dividend based on the company’s profits and financial position. However, the shareholders have the ultimate authority to approve the dividend.
Dividend Record Date
The dividend record date is the date on which a shareholder must hold shares to be eligible to receive the dividend. The record date is decided by the Board of Directors of the company, and it is usually a few weeks before the date of payment of dividend.
Payment of Dividend
The payment of dividend is made to the shareholders either by way of direct credit to the bank account of the shareholder or by way of a warrant or cheque. The payment of dividend must be made within 30 days of the declaration of the dividend.
Dividend Tax
Dividends received by the shareholders are subject to tax under the Income Tax Act, 1961. The tax on dividends is levied at the rate of 10% for individual shareholders, Hindu Undivided Families (HUFs), and firms, while it is 20% for corporate shareholders.
Reserves and Surplus
The payment of dividend is subject to the availability of profits and reserves of the company. The company cannot pay dividend if it does not have sufficient profits or reserves. Further, the company may transfer a portion of its profits to reserves and surplus, and the remaining profits may be used for payment of dividends.
