The following steps are required to be taken by a company in respect of declaration and payment of final dividend:
1. Issue notice for holding a meeting of the Board of directors of the company to consider the matter. The notice must be in accordance with Section 286 of the Companies Act. It must contain time, date and venue of the meeting and details of the business to be transacted thereat and must be sent to all the directors for the time being in India and to all other directors, at their usual address in India.
2. In case of listed companies, notify Stock exchange(s) where the securities of the company are listed, at least 7 days in advance of the date of the meeting of its Board of Directors at which the recommendation of interim dividend is to be considered. [Clause 19 of listing agreement].
3. Hold Board meeting for the purpose of passing the following resolutions:
(a) approving the annual accounts (balance sheet and profit and loss account of the company for the year ended on 31st March ………….);
(b) recommending the quantum of final dividend to be declared at the next annual general meeting and the source of funds for the payment thereof, i.e.:
(i) out of profits of the company after providing for depreciation for the current financial year and also for earlier years, if not already provided and amount to be transferred from the current profits to reserves as per provisions of the Companies (Transfer of Profits to Reserves) Rules, 1975; or
(ii) out of reserves in accordance with the provisions of the Companies (Declaration of Dividend out of Reserves), Rules, 1975.
(c) fixing time, date and venue for holding the next annual general meeting of the company, inter alia, for declaration of dividend recommended by the Board;
(d) approving notice for the annual general meeting and authorising the company secretary or any competent person if company does not have a company secretary to issue the notice of the AGM on behalf of the Board of directors of the company to all the members, directors and auditors of the company and other persons entitled to receive the same.
(e) determining the date of closure of the register of members and the share transfer register of the company as per requirements of Section 154 of the Companies Act and the listing agreements (in the case of listed companies) signed by the company with the stock exchanges where the securities of the company are listed. In the case of listed companies, the date of commencement of closure of the transfer books should not be on a day following a holiday. The dates so fixed should also not clash with the clearance programme in the stock exchanges. It is advisable to consult in advance the regional stock exchange and then fix the dates for closure of books.
4. In case of a listed company, immediately within 15 minutes of the conclusion of the Board meeting, intimate the stock exchanges with regard to the Board’s decision about declaration and payment of dividend by way of a letter or telegram/fax. [Clause 20 of listing agreement]
5. Publish notice of book closure in a newspaper circulating in the district in which the registered office of the company is situated at least seven days before the date of commencement of book closure. [For a notice of book closure, please see Annexure III at the end of this Study]. In case of listed companies:
(i) To give notice of book closure at least 21 days or as many days as the stock exchange may prescribe, before the closure or record date, stating the dates of closure of its transfer books/record date.
(ii) To send the copies of notice stating the date of closure of the register of transfers or record date, and specifying the purpose for which the register is closed or the record date is fixed, to other recognised stock exchanges.
(iii) In case of securities which are announced by SEBI to be compulsorily delivered in the dematerialized form, notice as above to be given at least 15 days (instead of 21 days) before the closure or record date and time gap between two book closures would be at least 30 days.).
(Clause 16 of listing agreement read with Section 154 of Companies Act, 1956).
6. Close the register of members and the share transfer register of the company.
7. The amount of dividend as recommended by the Board of directors shall be shown in the Directors’ Report as appropriation of profits for the financial year to which the Report relates. The same amount is shown in the Balance Sheet as at the end of the related financial year as “Proposed Dividend” under the head “Current Liabilities & Provisions”, Sub-head “Provisions”.
8. Hold a Board/committee meeting for approving a registration of transfer/ transmission of the shares of the company, which have been lodged with the company prior to the commencement of book closure. In compliance with the Board resolution, register transfer/transmission of shares lodged with the company prior to the date of commencement of the closure of the register of members and mail the share certificates to the transferees after endorsing the shares in their names.
9. Hold the annual general meeting and pass an ordinary resolution declaring the payment of dividend to the shareholders of the company as per recommendation of the Board. The shareholders cannot declare the final dividend at a rate higher than the one recommended by the Board.
However, they may declare the final dividend at a rate lower than the one recommended by the Board. The following should be noted in this regard:
(a) Once a company has declared a dividend for a financial year at an annual general meeting, it cannot declare further dividend at an extraordinary general meeting in relation to the same financial year; it is beyond the powers of the company to do so, although the Companies Act does not prohibit the declaration of a dividend at a general meeting other than an annual general meeting.
(b) Prorata means in proportion or proportionately, according to a certain rate. It denotes a method of dividing something between a number of participants in proportion to some factor. The profits of a company are shared, pro rata, among the shareholders, i.e. in proportion to the number of shares each shareholder holds.
(c) In the case of preference shares, dividend is always paid at a fixed rate. However, in the case of equity shares, a dividend must be declared and paid according to the amounts paid or credited as paid on the shares, i.e., according to the paid up value of the shares. [Table A, article 88(1)].
(d) Unless the terms of issue of shares or the resolution declaring a dividend so provide, dividend shall be apportioned and paid proportionately to the amounts paid or credited on shares during any portion(s) of the period in respect of which the dividend is paid. But if the terms of issue (or the resolution declaring a dividend) provide that the shares shall rank for dividend as from a particular date, dividend may be paid accordingly. [Table A, article 88(3)].
10. Prepare a statement of dividend in respect of each shareholders containing the following details:
(a) Name and address of the shareholder with ledger folio No.
(b) No. of shares held.
(c) Dividend payable.
11. Ensure that the dividend tax is paid to the tax authorities within the prescribed time.
12. The Issuer will fix and notify stock exchanges, at least twenty-one days in advance, of the date on and from which the dividend on shares will be payable. [Clause 21 of listing agreement]
13. Open a bank account for making dividend payment and credit the said bank account with the total amount of dividend payable within five days of declaration of dividend.
14. Make arrangements with the bank and in collaboration with other banks if required, for payment of the Dividend Warrants at par at the centres as determined by the Stock Exchanges in case of listed company. [Clause 21 of listing agreement]
15. To have sufficient number of dividend warrants printed in consultation with the company’s banker appointed for the purpose of dividend. To get approval of the RBI for printing the warrants with MICR facility. Get the dividend warrants filled in and signed by the persons authorised by the Board.
16. No RBI approval required for payment of dividend to shareholders abroad, in case of investment made on repatriation basis.
17. Prepare two copies of the list of members with names and addresses only for mailing purposes – one to cut and paste on envelopes which could even be printed on self sticking labels and the other for securing receipt from the Post Office.
18. Where an instrument of transfer has been received by company prior to book closure but transfer of such shares has not been registered when the dividend warrants were posted, then keep the amount of dividend in special A/c called “Unpaid Dividend Account” unless the registered holder of these shares, authorises company in writing to pay dividend to the transferee specified in the said instrument of transfer. (Section 205A)
19. Dispatch dividend warrants within thirty days of the declaration of dividend [Refer Section 207]. In case of joint shareholders, dispatch the dividend warrant to the first named shareholder.
20. Send sufficient number of cancelled dividend warrant forms with MICR code allotted by the RBI, to the bank for circulation to the branches where the dividend warrants will be payable at par.
21. Instructions to all the specified branches of the bank that dividend should be paid at par should be sent by the Bank.
22. Publish a Company notice in a newspaper circulating in the district in which the registered office of the company is situated to the effect that dividend warrants have been posted and advising those members of the company who do not receive them within a period of fifteen days, to get in touch with the company for appropriate action (in the case of listed companies, as a good practice).
23. Issue bank drafts and/or cheques to those members who inform that they received the dividend warrants after the expiry of their currency period or their dividend warrants were lost in transit after satisfying that the same have not been encashed.
24. Arrange for transfer of unpaid or unclaimed dividend to a special account named “Unpaid dividend A/c” within 7 days after expiry of the period of 30 days of declaration of final dividend.
25. Transfer unpaid dividend amount to Investor Education and Protection Fund after the expiry of seven years from the date of transfer to unpaid dividend A/c. The company when crediting to the account of the fund, should separately furnish to RoC a statement in e-Form 1 of IEPF Rules duly certified by chartered accountant or a company secretary or a cost accountant practising in India or by the statutory auditors of the company.