Procedure for Payment of Dividend

4. Procedure for Payment of Dividend

In practice, a company (through its Board and its Company Secretary) follows these broad steps to pay a final dividend:

1. Board meeting — recommend the rate. The Board of Directors examines the audited final accounts, ensures depreciation has been provided and any past losses set off, decides how much profit (if any) to transfer to reserves at its own discretion, and then recommends a rate of dividend to be placed before the shareholders.
2. Notice of the AGM. The notice convening the Annual General Meeting must state the recommended dividend and include the resolution proposing to declare it, so shareholders know in advance what they will be asked to approve.
3. Fixing the record date / closure of register. The company fixes a record date (or closes its Register of Members for a specified period) to determine exactly which shareholders, as on that date, are entitled to receive the dividend.
4. Declaration at the AGM. The shareholders consider the Board's recommendation and pass an ordinary resolution declaring the dividend — they may approve the recommended rate or reduce it, but cannot declare a higher rate than the Board recommended. Once declared, the dividend becomes a debt due from the company to each shareholder entitled to it, and cannot be revoked.
5. Opening a separate bank account and depositing the amount. Within five days of declaration (Section 123(4)), the company deposits the entire amount of dividend payable into a separate scheduled-bank account, kept apart from its other accounts, so that the money is ring-fenced purely for paying shareholders.
6. Payment to shareholders, within 30 days. The company pays the dividend — by dividend warrant, cheque, or electronic mode such as NEFT/ECS — to every shareholder registered as on the record date, within 30 days of declaration, as Section 127 requires. Any tax deductible at source (TDS) on dividend is deducted before payment, as applicable.
7. Transfer of unpaid/unclaimed dividend. For any shareholder who cannot be paid within the 30 days (a wrong address, a lost warrant, and so on), the company transfers that unpaid amount to the Unpaid Dividend Account within a further 7 days, and later prepares and publishes the statement of unclaimed dividend required under Section 124. …