Dividend and Interest — Secretarial Practice STD 12 Commerce / Arts — Question

The term dividend is derived from the Latin word ‘Dividendum’ which means that which is to be divided. A dividend is the portion of the company’s earnings distributed to the shareholders decided and managed by the company’s board of directors.
The dividend is a share of distributable profits of the company. A shareholder is entitled to receive the dividend when it is formally declared by the company.
Definitions:

• The Institute of Chartered Accountants of India has defined Dividend “as a distribution to shareholders out of profits or reserves available for this purpose”.
• The Supreme Court has defined it as “In case of going – concern, it means the portion of profits of a company, which is allotted to the holders of shares in a company”.

Features of Dividend:

• It is the portion of profits of the company paid to its shareholders.
• It is payable out of profits of the company.
• It is an unconditional payment made by the company.
• The company pays dividends to the equity shareholders and preference shareholders only.
• If the company has issued equity shares with differential rights as to dividend, the terms of issue of such shares will govern the rights of shareholders about receiving the dividend.
• A dividend cannot be declared out of capital.
• Recommendation of the Board of Directors is necessary for the declaration of dividends.
• The dividend is recommended and approved by the Board of Directors by passing a resolution at the Annual General Meeting.
• The previous year’s dividend cannot be declared if that particular year’s Annual Account has been approved in the AGM.
• Dividend once approved and declared by shareholders, creates a debt. It cannot be revoked.
• The dividend includes the interim dividend.
• The dividend must be paid in cash, cheque or transferred through ECS or NEFT and not in kind.
• The dividend is to be paid on the paid-up value of shares.
• Dividend cannot be paid on calls paid in advance.