Question

Explain the Procedure for payment of dividends.

Answer 1

Meaning: -
The dividend once declared in an annual general meeting, it becomes debt from that date. The provisions regarding payment of dividends are embodied in sections 80, 93, 205, 206 and 207 of the Companies Act, 1956.

Rules and Procedure Regarding Payment of Dividend:

1. Convening the board meeting after finalization of accounts: -
   The secretary convenes a board meeting to consider the number of dividends.

1. Resolution by the Board: -
   The board after considering the amount of divisible profit recommends a rate of dividend by passing a resolution. 
2. Notice to the stock exchange for the closure of transfer books: -
   The secretary gives notice to the stock exchange stating the date of closure of the company's transfer books for the purpose of the declaration of dividend. 
3. Ensuring the various provisions of the Act complied with: -

• The secretary has to ensure that the required percentage is transferred to the reserves account.
• The secretary has also to ensure that the company does the compliance of Sec. 80 (A) according to which a dividend cannot be declared by the company which could not redeem redeemable preference shares within a stipulated period. 

5. Convening annual general meeting: -
   The secretary has to convene the Annual General Meeting and to make sure that the matter of declaration of dividend is included in the agenda. An ordinary resolution is passed for declaring the dividend recommended by the board. 
6. Preparation of Dividend List: -
   Afterthe declaration of a dividend the secretary has to prepare dividend list. It shows the name and address of each member, his shareholdings on that date, the gross dividend due, the income tax to be deducted at source and the net amount dividend payable. 

7. Posting of dividend warrants: -
   The secretary has to arrange to post Dividend Notices and warrants on the registered addresses of the shareholders within 30days of a declaration of dividend.

In the case of joint holders, the dividend notice is given to the person whose name appears first in Register of Members. 

8. Public notice to share warrant holder: -
   The secretary has to publish the declaration of payment of dividends in a newspaper for share warrant holders. The dividend is paid to share warrant holders through dividend coupons attached to the share warrants. The share warrant holders present the coupons to the company's bankers.