In an earlier post here, we have discussed provisions related to
dividend under the Companies Act, 2013. Now we have the Companies (Declaration
and Payment of Dividend) Rules 2014 as notified on 31st March 2014
for discussion.
These Rules explains procedure under Section 123
of the Companies Act, 2013 and need to be read with the Section 123. According
to Second and Third Proviso to sub – section of Section 123; where a company
has
no adequate profit or any profit in a financial year or any accumulated profit
to distribute as dividend, it may declare dividend out of reserves in accordance
with the rules made by the government. The company may pay dividend only from
free reserves, not from any other reserves.
Now, Rule 3 of the Companies (Declaration and
Payment of Dividend) Rules 2014 makes rules for declaration of dividend out of
reserve.
In the event of adequacy or absence of profits
in any year, a company may declare dividend out of surplus subject to the
fulfillment of the following conditions, namely:-
(1) The rate of
dividend declared shall not exceed the average of the rates at which dividend
was declared by it in the three years immediately preceding that year. However,
this sub-rule shall not apply to a company, which has not declared any dividend
in each of the three preceding financial year.
(2) The total amount to be drawn from such
accumulated profits shall not exceed one-tenth of the sum of its paid-up share
capital and free reserves as appearing in the latest audited financial
statement.
(3) The amount so drawn shall first be utilised
to set off the losses incurred in the financial year in which dividend is
declared before any dividend in respect of equity shares is declared.
(4) The balance of reserves after such withdrawal
shall not fall below fifteen per cent of its paid up share capital as appearing
in the latest audited financial statement.
(5) No company shall declare dividend unless
carried over previous losses and depreciation not provided in previous year are
set off against profit of the company of the current year the loss or
depreciation, whichever is less, in previous years is set off against the profit
of the company for the year for which dividend is declared or paid.
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