DECLARATION OF DIVIDEND

DECLARATION OF DIVIDEND

Declaration of dividend is an important matter in every organization. In normal concept declaration of dividend has lot of impact on the image of the company. Investors are generally investing their money on the shares of the company which has good track record of declaration of dividend. To declare dividend a company should complied various legal provision.

Section 123 of the company act 2013 has provides required provision to be followed for declaration of dividend. To declare dividend a company should arrange necessary fund. Here company act 2013 provides necessary guideline in this regard. It is mandatory for a company to use following sources of fund for declaration of dividend.

Sources of fund to be used for declaration of dividend:-

Ø  Out of Current year profits.

Ø  Out of free reserve.

Ø  Out of current year profit and free reserve.

Ø  Out of fund provided by the government.

Above mentioned profit should be calculated after providing depreciation.

Mode of payment:-

When a company declares dividend it becomes liability of a company pay dividend. Declared dividend is a current liability of a company. So it should be paid without much delay. Following are the methods of payment of dividend:

Ø  By cash.

Ø  By cheque.

Ø  By warrant.

Ø  By any electronic mode.

Dividend should be paid to only registered shareholder or in accordance with his direction. It is mandatory for a company to deposit the amount of dividend including interim dividend in a separate bank account of scheduled bank. Amount should be deposited within five days from the date of declaration.

Prohibition on declaration of dividend:

Ø  No company shall declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against profit of the company of the current year.

Ø  Company which is prohibited on acceptance of deposit from public.

Ø  Company fails to repayment of deposit.