Declaration and Payment of Dividend

A set of vocabulary flashcards covering the legal framework, types, and procedures for the declaration and payment of dividends under the Companies Act, 2013.

Dividend

defined under Section 2(35) of the Companies Act, 2013, to include any interim dividend, and generally refers to a distribution of profits to shareholders from sums earned by the company or from free reserves.

Interim Dividend

a dividend declared by the Board of Directors at any time during the period from the closure of the financial year until the holding of the Annual General Meeting ($AGM$).

Final Dividend

the dividend recommended by the Board of Directors and approved by shareholders at the company's Annual General Meeting after the close of the financial year.

Free Reserves

defined under Section 2(43) as reserves available for distribution as dividend according to the latest audited balance sheet, excluding unrealized gains, revaluation of assets, and certain fair value adjustments.

Cumulative Preference Shares

preference shares where the dividend accumulates, and any arrears due to insufficiency of profits are payable from the profits of future years before dividends can be paid on equity shares.

Non-cumulative Preference Shares

shares where the dividend is payable only in a year of profit, and the right to receive such dividend for that year lapses if not declared, with no arrears payable in the future.

Equity Shares

shares that are not preference shares and do not enjoy preferential rights regarding dividend payments; the rate of dividend is recommended by the Board and depends on availability of profits.

Depreciation

a notional estimate of the reduction in an asset's value due to wear and tear, efflux of time, or technological improvements, which must be provided for as per Schedule II before declaring a dividend.

Unpaid Dividend Account ($UDA$)

a special account in a scheduled bank where a company must transfer any dividend amount that remains unpaid or unclaimed within $30$ days of its declaration, within $7$ days of the expiry of that period.

Investor Education and Protection Fund ($IEPF$)

a fund established by the Central Government under Section 125 to which unclaimed dividends, interest, and shares are transferred after being in the Unpaid Dividend Account for $7$ years.

Disgorgement

the legally enforced repayment of ill-gotten gains imposed on wrongdoers by the court, with such funds being paid back and credited to the $IEPF$.

Record Date

the date announced by a company to determine which registered shareholders are entitled to receive a declared dividend.

Nidhis

a specific type of company as per Notification No. $GSR 465 (E)$ where dividends payable in cash may be paid by crediting the member's account if unclaimed within $30$ days of declaration.

Abeyance

a legal state under Section 126 where dividends, rights shares, and bonus shares are withheld or delayed by the company pending the registration of a share transfer.

Section 8 Company

a company formed with charitable or promotional objects that is prohibited from paying any dividend to its members under Section 8(1) of the Companies Act, 2013.

Capital Profits

profits not earned in the normal course of business, such as revaluation profits, which are not considered distributable profits and are generally not available for dividend payment.