1. Types of Dividends

• Public Limited Companies may declare:
  
  • Interim Dividend: Declared by the Board of Directors between two Annual General Meetings (AGMs).
    
  • Final Dividend: Recommended by the Board and declared by the shareholders at the AGM.
    
• Final dividends are declared after the adoption of audited financial statements, while interim dividends can be paid based on provisional results.
  
• Dividends are generally paid in cash, but can also be issued as bonus shares (stock dividend) in certain cases.
  

2. Conditions for Declaration

• Dividends can only be declared out of:
  
  • Current year’s profit, after depreciation and taxes
    
  • Past reserves, subject to compliance with Rule 3 of the Companies (Declaration and Payment of Dividend) Rules, 2014
    
• The company must ensure that it has:
  
  • No accumulated losses
    
  • Sufficient free reserves
    
  • Complied with depreciation requirements
    
• In case of interim dividends, the Board must ensure the company remains solvent post-distribution.
  

3. Approval Process

• For Final Dividend:
  
  • Recommended by the Board of Directors in a board meeting.
    
  • Must be approved by shareholders at the AGM through an ordinary resolution.
    
• For Interim Dividend:
  
  • Can be directly approved by the Board without shareholder resolution.
    
  • Requires review of interim financial statements.
    
• The resolution specifies the rate of dividend, record date, and payment date.
  

4. Compliance and Payment Timeline

• The company must deposit the declared dividend amount into a separate bank account within 5 days of declaration.
  
• Dividends must be paid to eligible shareholders within 30 days of declaration.
  
• If unclaimed for 30 days, the amount is transferred to the Unpaid Dividend Account.
  
• If still unclaimed for 7 years, it is moved to the Investor Education and Protection Fund (IEPF).
  
• Companies must maintain and disclose records of unpaid and transferred dividends.
  

5. Statutory and Regulatory Requirements

• The declaration must comply with:
  
  • Section 123 of the Companies Act, 2013
    
  • SEBI (LODR) Regulations, 2015 for listed companies
    
• Listed companies must inform the stock exchanges of the Board meeting and the outcome related to the dividend.
  
• Board resolutions, AGM minutes, and bank advice must be maintained as proof of compliance.
  
• The company must also update the Register of Members and communicate dividend details to depositories.