Updated on April 21, 2025 11:45:01 AM
Dividend is a payment made by a company to its shareholders as a reward for their investment in the company. Dividends are usually distributed in the form of cash or additional shares of stock. The declaration and payment of dividends are important decisions for companies and their shareholders, and are subject to various legal and regulatory requirements.
Key Highlights
Dividend refers to the portion of profits earned by a company that is distributed to its shareholders as a reward for their investment in the company. It is a payment made by a company to its shareholders, usually in the form of cash or additional shares of stock. Dividends are typically declared by the company's board of directors and are subject to various legal and regulatory requirements.
The amount of dividends paid out to shareholders is determined by the company's financial performance, cash flow position, growth plans, and other factors. Dividends are an important source of income for investors and are a key factor in determining the value of a company's stock.
Dividend declaring is the process by which a company's board of directors announces the payment of dividends to its shareholders. The declaration of dividends is usually accompanied by a record date, which is the date on which shareholders must be on record in order to receive the dividend payment.
The two types of dividends that are issues in a company are:
An interim dividend is a dividend payment made by a company to its shareholders during the financial year before the final accounts are prepared. It is usually paid out in the middle of the financial year based on the company's interim financial results. The purpose of an interim dividend is to distribute a portion of the profits earned by the company to its shareholders before the end of the financial year. The amount of an interim dividend is usually lower than that of a final dividend and is subject to the approval of the company's board of directors.
A final dividend is a dividend payment made by a company to its shareholders at the end of the financial year based on the company's annual financial results. The purpose of a final dividend is to distribute a portion of the profits earned by the company to its shareholders at the end of the financial year. The amount of a final dividend is usually higher than that of an interim dividend and is subject to the approval of the company's shareholders at the annual general meeting.
The decision to declare and pay interim and final dividends is typically made by the company's board of directors, who consider various factors such as the company's financial performance, cash flow, growth plans, and other factors.
The process of dividend declaration involves the necessary steps given below:
The Board of Directors of the company must be notified of the meeting through a notice and the notice must specify the date, time and place of the meeting. The notice should be sent to all directors at least 7 days prior to the meeting.
The board meeting should be held to consider and approve the declaration of the dividend. The board of directors will review the company's financial statements and consider other factors such as growth plans, capital requirements, and other obligations before deciding on the amount of the dividend to be declared.
The board of directors will pass a resolution approving the dividend amount and the record date (the date on which shareholders must hold shares in order to receive the dividend).
After passing the resolution, the company must file the e-Form MGT-14 with the Registrar of Companies (ROC) within 30 days of passing the resolution. This form contains the details of the resolution passed and the attachments to the resolution.
Once the e-Form MGT-14 is filed with the ROC, the company must conduct its Annual General Meeting (AGM) within six months of the end of the financial year. The decision taken must be broadcast to all the existing shareholders of the company.
The company must declare the dividend and send it to a different account, opened for the purpose of declaring dividend and then the declared dividend must be distributed among the eligible shareholders of the company.
The company will then make the dividend payment to the shareholders on the date specified, which is usually a few weeks after the record date.
It is important to note that the process of declaring and paying dividends may vary slightly depending on the company's specific circumstances and the relevant legal and regulatory obligations. However, the above steps provide a general overview of the process followed by private limited companies in India when declaring dividends.
Conclusion
In conclusion, dividend declaration in a private limited company is a crucial decision taken by the company's board of directors. It involves several legal, financial, and administrative steps that must be followed to ensure compliance with the Companies Act and the Income Tax Act.
The company must maintain adequate profits, reserves, and liquidity to pay dividends and meet future obligations. Dividend declaration can have a significant impact on the company's reputation, stock price, and investor confidence, and must be carefully planned and communicated. A well-planned dividend policy can help attract and retain investors, build long-term relationships, and boost the company's growth and profitability.
Dividend is declared by a Board resolution in a Pvt Ltd Company after a mutual consent of the dividend declaration.
A company should declare dividends to its shareholders when it is financially stable and has a good amount of profits. Dividends must be paid from the net profit of the company.
Any shareholder who holds shares in the company for at least two days prior to the record date.
No, it is not mandatory. A company can offer dividends if it has a good amount of profits in reserves. In a particular year it may happen that the company has not generated any profits then it is not legally bound to declare dividends.
Call us on
+91 9958881762
[Mon - Sat, 10am - 7pm]
Write to us
804,8th Floor, Bhandari House- 91, Nehru Place, New Delhi 110019
Reliable
Affordable
Assurity
They've been very helpful in our registration with ICEGATE. It was a small thing with a small amount paid which somehow escalated to a very painful procedure. Never did they say "You've only paid so much. It's too much effort for us.".
Very pleased with their service. Prompt, professional and great communication. Definitely recommend. Special mention for Ms. Razia - she handled our case.
Professional Utilities is fully professional in their work, Rates are too low and genuine. Services and satisfaction are high so I highly recommended Professional Utilities.
They are one of the most genuine and reasonable people. I applied for lmpc certificate through them and they charged me a very nominal amount as compared to what other firms asked .
