Meaning and Definition of Dividend

1. Meaning and Definition of Dividend

In ordinary business usage, dividend is the portion of a company's distributable profit that the company decides to distribute among its shareholders, in proportion to the shares they hold, instead of retaining that profit in the business. It is the return a shareholder earns on the capital they have invested by buying shares.

Statutory definition — Section 2(35), Companies Act, 2013: "dividend includes any interim dividend." This is a deliberately short, inclusive definition — the Act does not attempt to define dividend exhaustively in positive terms; it simply makes clear that wherever the Act uses the word 'dividend', that word is understood to cover an interim dividend as well as the ordinary (final) dividend, so that every provision dealing with dividend (sources, unpaid-dividend rules, the penalty for non-payment, and so on) applies equally to both.

Key features of dividend, drawn from how the Act and general company-law principle treat it:

1. It is a share of profit, not a share of capital — a company can ordinarily distribute dividend only out of its available profits (or free reserves, or specific government-guaranteed money), never out of its share capital.
2. It is paid to shareholders, in proportion to the paid-up value of the shares they hold (subject to any special rights attached to preference shares).
3. It is discretionary in origin — a company is never legally compelled to declare a dividend merely because it has earned a profit; the decision involves both the Board (which recommends the rate) and the shareholders (who declare/approve it at a general meeting), as explained in the next sections. …