What is Dividend

Under section 2(35) of the Companies Act, 2013 defines the dividend as the specific portion of the profit given to the shareholders from the net profit of the company. For the distribution of dividend net profit is legally available at the company’s account. Divided is further described as a return on the share capital subscribed for and paid to its shareholders by a company. Interim dividend is also included. The term dividend is derived from the Latin word “Dividendum” which means anything which is to be divided. This article focus on the dividend declaration as per companies act 2013.

Companies Act Section 2 (35) prescribed interim dividend as below:

  1. Whether at a fixed rate or otherwise, a dividend shall be distributed to the holders of shares in a company.
  2. Whether it is Equity shares or preference shares, Dividend can be paid at both the cases.


Sections under CA,


 What Matters deals
2(35)Definition of Dividend
51Payment of dividend
91Declaration of book closure/record date and publication of notice of record date
123Payment of dividend -sources, transfer of profits to reserve, etc
123(5)dividend shall be paid to registered shareholders and beneficial owners under CSDL/NSDL
126(6)restriction on payment of dividend on equity shares on failure to comply with deposits
124Unpaid dividend to be transferred to special dividend account
126Right of dividend etc
127Payment of dividend must be made within 30 days of its declaration.


Dividend Declaration as per companies Act 2013

The process in which the Board of directors makes a decision and declares a dividend for the payment to the stockholders by which the retained earnings account of the company get reduced by the amount of the declared dividend.

*The retained earnings account is an account which holds equity of the company that shows the net balance earnings.


Notice of dividend shall be given: Notice of dividend declared shall be given to the persons entitled to share in it (as per the Clause 87 of Model Articles of Company limited by shares as contained in Table-F of schedule-I of 2013 Act)

The process of Dividend Declaration as per companies act 2013

  1. Company shall recommend in General Meeting the amount of dividend which it can decide in Board Meeting.
  2. The resolution for Dividend in the Notice of General Meeting shall be mentioned by the company
  3. General Meeting will hold by the company:
  • Declaration of the dividend is Ordinary Business.
  • Ordinary Resolution for the declaration of a dividend will be passed in the General Meeting.

4.  It must be paid within 30 days once the dividend is declared.

{As per Clause 80 of Model Articles of Company Limited by shares as Contained in Table-F of Schedule-I of the 2013 Act}

Important notes

  1. Dividend declared in General Meeting can’t exceed the dividend recommended by the Board.
  2. Dividend declared in General Meeting by the member can be less than the dividend recommended by the Board.
  3. Dividend paid in General Meeting is Final Dividend.

Prohibition on Dividend declaration as per companies act 2013

  1. if a company having default section 73 and 74 related to deposit and repayment of deposit or interest then it may or may not declare a dividend.
  2. if a company fails to comply with the acceptance of deposits and repayment of deposits then it cannot declare a dividend.


Punishment for not distributing dividend (section 127)

If a company declare dividend but fails to pay or the warrant in respect thereof has not been posted within thirty days from the date of declaration to the shareholders then every director of the company shall be punishable with the imprisonment of two years and fined not less than one thousand rupees from the day of default continues. During the period for which such default continues, the company shall be liable to pay simple interest at the rate of 18%p.a.

Some Important points

  • it is the responsibility of the Board to declare the dividend and transfer the amount to the reserve.
  • in respect of dividend, the bonafide decision of board cannot be challenged.
  • the dividend should be declared at the unconditional basis and must be paid within 30 days.
  • The dividend on equity shares can be distributed only after dividend on preference shares is declared.
  • The amount of the dividend, including interim dividend, shall be deposited in a scheduled bank in a separate account within 5 days from the date of declaration of such dividend.

For further complete information regarding companies act 2013, section 2(68), section 8, Company registration visit our website: Legal Raasta

You can also send your query on Email: contact@legalraasta.com and ring us on 8750008585.

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