Q.Study the following case/situation and express your opinion:
Harsh Company Limited decides to pay an interim dividend.
Is the board justified to decide interim dividend of 10 per share even though profits till date are insufficient?
Can the board declare a dividend out of free reserves?
In how many days must the company pay a dividend to shareholders from the date of declaration?

The underlined "60 days" is wrong; dividend must be paid within 30 days of its declaration.

Under the Companies Act, 2013, once a dividend is declared, it becomes a debt due to shareholders and must be paid promptly:

• The company must pay the dividend (or dispatch the dividend warrant/credit it electronically) to the entitled shareholders within 30 days of the date of declaration. …

'Shareholders' is wrong; the correct answer is the Board of Directors.

The payment of a final dividend follows a set procedure. First, the Board of Directors studies the company's profits and financial position and recommends a rate of dividend. This recommendation is only a proposal at this stage.

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The statement is False. Dividend can be paid only out of profits, not out of capital.

Dividend is that portion of a company’s profit which is distributed among its shareholders. The Companies Act, 2013 lays down clear sources from which it may be paid.

• Dividend may be declared out of the current year’s profit, out of accumulated (past) profits (free reserves), or out of money provided by the government for that purpose. …

The correct option is 30 days. A declared dividend must be paid within 30 days.

When a company declares a dividend, it creates a debt owed to its shareholders. To make sure shareholders actually receive their money quickly, the Companies Act, 2013 requires that the dividend be paid (or the warrant posted) within 30 days from the date of declaration.

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