DECLARATION AND PAYMENT OF DIVIDEND CONCEPT NOTEContents 1 Introduction... 2 Dividend... 2.1 Types of Dividends se z 2.2 Key Differences Between Interim Dividend and Final Dividend... z 3. Section 123 -Declaration of dividend. 3.1 Final Dividends. 3.1.1 Who can declare the Final Dividend? And when it can be declared?.... 3.1.2 Whatare the sources of Dividends?.... 3.1.3. Whatare the conditions to be met before paying dividend? 3.2 Interim Dividends. 3.2.1 Who can declare the Interim Dividend? And when it can be declared?. 3.2.2 Whatare the sources of Interim Dividend? 3.3. Declaration of Dividend (Final and interim] when there is inadequacy or Absence of Profits... 3.4 Whatis the procedure for the distribution of Dividends (Final and Interim)?.. 3.5 To Whom the dividend (Final and Interim) shall be Pai 3.6 How can dividends (Final and Interim) be paid? 3.7 Prohibition on declaration of dividend (Final and Interim). 4 Section 124 - Unpaid Dividend Accoun 4.1 What isan Unpaid dividend account and its provisions? in tm to i em mo min RO Ow 4.2. Whatis the penalty for violation of this section? 5 Section 125 - Investor Education and Protection Fund .. 10 mal) mal) 1t 5.1 Who will establish the Investor Education and Protection Fund? ... 5.2 What amount shall be credited to (IEPF) fund? 5.3 Where shall the fund be utilized?.. 5.4 Who shall administer the Investor Education and Protection Fund?......00 u1T 5.5 Whats the composition of the Investor Education and Protection Fund Authority? 2 5.5.1 What are the Functions of the Authority? 2 55.2 Whois the Auditor of the fund? 2 6 Section 126 - Right to dividend, rights shares, and bonus shares to be held in abeyance pending registration of transfer of shares. a at 7 2 6.1 What shall be the scenario where the transfer of shares has not been registered by the company? 23 7 Section 127 - Punishment for failure to distribute dividends. 7.1 Whatis the time limit for the distribution of Dividends?. Ltlpoge WWW.EQUTAP.CO.IN QUERY? HELLO@EDUTAP.CO.IN / 8146207241 |7.2 Whats the punishment for the failure of the distribution of dividends? ... 7.3 Whatare the instances when the violation of the distribution of dividends is permissible? 1 Introduction In the Companies Act, 2013 as per the Syllabus mentioned, Specific reference to Chapter Ill, Chapter IV, Chapter Vill, Chapter X, Chapter XI, Chapter XIl and Chapter XXVII is mentioned. «inthis lesson, we will cover Chapter Vill -Declaration of dividend which comprises of five sections from Section 123 to Section 127, «Before understanding the provisions of this chapter, let us learn few some basic terms which will help in better understanding of this lesson. 2 Dividend A dividend is the distribution of some of a company’s earnings to its shareholders, as determined by the company's board of directors. Invest money in the shares ofthe company 4 ‘Company pays a pat of ts profits to shareholders known as Dividends. Example: Nestle India Nestle India is one of the largest FMCG companies in India. Established in 1956, it is an Indian subsidiary of Swiss multinational conglomerate Nestle AG. Nestle India Dividend History i789 Fy20 Fv21 Dividend per share (Rs) 63 86 15 342 200 Apart from the dividend, few other basic terms are discussed below. 1. Board of Directors or —Board, in relation to a company, means the collective body of the directors of the company. 2. Ageneral meeting is a meeting of a company’s shareholders (unlike a board meeting, which is a meeting of the directors) ‘There are 2 types of General Meetings: AGM and EGM 2. Annual General Meeting (AGM): The AGM of a company or organization is @ meeting which it holds once a year to discuss the previous year’s activities and accounts b. Extraordinary General Meeting (EGM): An Extraordinary General Meeting (an EGM] can be defined as a meeting of shareholders which is not an Annual General Meeting (an AGM). It is held when some urgent issue becomes about the company arises or any situation of crisis EDUTAP. COIN ERY? HELLO@EDUTAP.CO.IN / 81462072413, Member of Company Section 2(55) —member, in relation to a company, means— i, the subscriber to the memorandum of the company who shall be deemed to have agreed to become member of the company, and on its registration, shall be entered as member in its register of members. ii, every other person who agrees in writing to become a member of the company and whose name is entered in the register of members of the company. ili, every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository. 2.1. Types of Dividends There are two types of Dividends namely Final Di below. Let us understand these dividends in detail fend and interim Dividend as shown in the image 2. Final Dividend Final Dividend means a dividend which the company announces after the financial statement for the fiscal year has been reported in the Types of ‘company’s Annual General Meeting (AGM) and the financial position Dividend and profitability position is ascertained. Once the final dividend is declared, it becomes an obligation enforceable against the company. Final Interim mie esa Dividend | | Dividend Interim Dividend can be understood as the dividend which is ‘announced by the company's directors before the ascertainment of annual profit or loss and the company’s annual general mzeting (AGM), i.e., any time between the two consecutive AGMs, it is announced by the board of directors, but it is subject to the approval of shareholders. 2.2 Key Differences Between Interim Dividend and The differences between interim dividend and final dividend are elaborated here in a detailed manner: a rer are) aed Interim cuiond i one that 6 Firat dNdercimples the ‘eclared and pall inthe middle dvidend decared by the board ff an accourtre year. 12, of directors, at the companys before the finaliation of Annual General Mesting, ater accounts forthe year the cose of rhe anancial eae. ‘Announced by the company’s Recommended by the Board st oar of hectors the board meeting and announced by the Members ef the company atthe AGM ESET T=n Before the propatation of Aftar the prepaation of fiance ‘ancl stacemens. stacemens CSTW i can be revoked tn tne IRcannot be ovoked. consent ofall shvehelders tess CComgaratety ngher I declares only when the I does rot require any spect ORIN aries specitcaly permit the provision inthe artes eciraton3 Section 123 -Declaration of dividend 3.1 Final Dividends 3.1.1 Who can declare the Final Dividend? And when it can be declared? Recommended by the Board at the board meeting and announced by the Members of the company at the Annual General Meeting. 3.4.2. What are the sources of Dividend: Sources of the dividend to be Paid a) Out of the profits of the company for that year arrived at after providing for depreciation (Mentioned in Schedule Il of the Companies Act, 2013, different schedules are discussed below) b) Out of the profits of the company for any previous financial year or years arrived at after providing for depreciation remaining undistributed }_ Out of money provided by the Central Government or a State Government for the payment of dividend by the company in pursuance of a guarantee given by that Government d) Out of free reserves of the company Section 2(43) defines Free reserves “Free reserves” means such reserves which, as per the latest audited balance sheet of a company, are available for distribution as dividend. * Free reserves are those which are not made for some specified purpose like Debenture redemption reserve or revaluation reserve, © P&LA/cisa free reserve. How Is free reserve created? Before the declaration of dividend, the company is required to transfer the part of the profit of that financial year to the company’s reserve. Hence the company can freely decide the amount to be transferred to reserves. * Bx If the company has 100 crores profit in the financial year (2022-23) then it can transfer based on its own requirement and obligations to the free reserves out of the profits. * If the company transfers 20 crores to free reserves in that particular financial year, then free reserve would witness an increase of 20 crores. Similarly, after every financial year, the company may credit the amount to free reserves depending on the profits earned. When Is free reserve used? If in case there is no profit or any profit in the fiscal year or any undistributed profits to declare as dividends, then the dividend is declared out of reserves, as p2r the provisions made by the government, but that should be out of free reserves only (Not from other reserves namely Debenture redemption reserve or revaluation reserve etc.) alpape WWW E0UTAP.CO.IN QUeRY? HELLOMEDUTAP, COLIN / £1462