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Question
There are no legal provisions regarding payment of dividend.
Solution
. False
Reasons:
(1) Dividend is the return on share capital from the distributable profits of the company.
(2) Based on the rate of proposed dividend company is required to transfer a certain percentage to reserves as specified.
(3) E.g. Dividend of more than 20% of paid up capital entails a minimum of 10% of net profits to the transferred to reserves.
(4) Company may decide to transfer more than the stipulated rates voluntarily.
(5) Also, depreciation has to be provided for from current / previous years profits.
These provisions help the company to become financially found and solid.
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