Companies Act Section 2(35) Dividend

Dividend Section 2(35)

"Dividend" is the profit portion a company distributes to its shareholders, usually as cash or bonus shares, based on their shareholdings.

Key Aspects of Dividends:

1. Distribution: 

Dividends are distributed to shareholders as a reward for their investment in the company and to provide them with a share of the profits earned by the company.

2. Types of Dividends:

Cash Dividend: Paid in cash to shareholders based on the number of shares held.

Stock Dividend (Bonus Shares): Additional shares distributed to shareholders at no cost, usually in proportion to their existing shareholdings.

Interim Dividend: Declared and paid during the financial year before the approval of annual financial statements.

Final Dividend: Declared at the annual general meeting (AGM) after the approval of annual financial statements.

3. Declaration and Payment:

Dividends are declared by the board of directors based on the company's financial performance, profitability, and available distributable reserves.

Shareholders approve the declaration of dividends at general meetings, either as interim or final dividends, depending on the timing and financial position of the company.

4. Legal and Regulatory Framework:

The declaration and payment of dividends must comply with the provisions of the Companies Act, 2013, including rules related to the utilization of profits, reserves, and compliance with regulatory requirements.

Dividends cannot be paid out of capital or other restricted reserves unless permitted by law, and the board must ensure sufficient profits or reserves exist to cover the dividend payments.

5. Rights of Shareholders:

Shareholders have the right to receive dividends in proportion to their shareholdings, as approved by the company's board and shareholders.

Non-payment or improper declaration of dividends may lead to legal actions by shareholders to enforce their rights under company law.

Importance and Impact:

1. Investor Confidence: 

Dividends signal financial health and profitability, attracting investors seeking regular income and long-term investment stability.

2. Capital Allocation: 

Companies use dividends to distribute profits to shareholders while retaining funds for business expansion, research, and development, or debt reduction.

3. Corporate Governance: 

Dividend policies reflect the board's commitment to transparent governance, shareholder value creation, and prudent financial management.