Declaration of Interim Dividend
As per section 123(3) of Companies Act, 2013, a dividend is said to be an Interim dividend, if it is declared by the Board of directors during any financial year out of surplus in the profit and loss account and out of profits of the financial year in which such interim dividend is sought to be declared.
Conditions for declaration of dividend:
- No company can pay dividend in any year without charging depreciation in the profit and loss account for the current year and that there is no balance of un provided depreciation of any earlier year or years.
- Company which has failed to comply with the requirements of section 73 and 74 related to prohibition and repayment of Deposits accepted from the public shall not declare any dividend on its equity shares. [Section 123(6)]
- Articles must authorize for the payment of interim dividend; the Board will not be able to recommend the interim dividend unless there is a provision in the articles authorizing the Board for the payment of interim dividend.
- Opening of a separate bank account for making payment of interim dividend and deposit the amount of dividend into the account within a period of 5 days of its declaration.
- Take approval of members at the general meeting for Interim dividend and also in the director’s report for the approval of members at the forthcoming AGM
Steps for Declaration of Dividend
- The Articles must grant the authority to pay interim dividends only then the Board will have the authority to declare the interim dividends.
- A Board meeting should be summoned, and the Notice for the same must include the time, date, and location of the meeting as well as specifics about the business that will be discussed there. It must also be addressed to all other directors at their normal address in India as well as to all current directors who are located in India.
- At the Board meeting, following matters must be considered: –
- The directors would be wise to prepare a provisional profit and loss account and balance sheet of the company up to the latest possible date of the financial year for which an interim dividend is proposed to be declared. Provision would also need to be made for all working expenses and depreciation for the entire financial year.
- Closure of register of members for declaration of record date for payment of interim dividend.
- Printing of dividend warrants. The Dividend warrant must be accompanied by a statement in writing showing the amount of Dividend paid and the amount of tax deducted at source, if any
- Open the “Interim Dividend Account of the Company” with the bank and deposit the Dividend amount within 5 days of declaration of same by the Board. The amount so transferred shall not be utilized for any other purpose. The same shall be paid within 30 days of declaration by the Board.
- Pass Board Resolution for payment of Interim dividend
- Prepare a statement of dividend in respect of each shareholder.
- Make sure the Dividend Distribution Tax is paid to the tax authorities before the deadline.
- In the case of investments made on a repatriation basis, there is no requirement for RBI clearance for the payment of dividend to shareholders abroad.
- Within 30 days of the dividend declaration, it must be paid in cash and may be transmitted directly to the shareholder’s registered address by mail, cheque, warrant or electronic transfer. Send the dividend warrant to the first specified shareholder in the case of joint shareholders, or as instructed by them.
