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Understanding Dividend Distribution Rules under Companies Act, 2013

Declaration of dividend is a key corporate decision reflecting financial strength, governance, and shareholder trust. It goes beyond profit distributionu2014signifying revenue performance, discipline, and management credibility. Under the Companies Act, 2013, the process from proposal to payment is governed by strict provisions ensuring compliance and transparency. For investors, dividend policies serve as indicators of financial stability and strategic direction, aiding better investment decisions. With evolving regulations and market trends, understanding the legal framework, types, process.

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Understanding Dividend Distribution Rules under Companies Act, 2013

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  1. UNDERSTANDING DIVIDEND DISTRIBUTION RULES UNDER COMPANIES ACT, 2013 Declaration of dividend under the Companies Act, 2013 is a crucial corporate decision reflecting financial stability, governance, and shareholder trust. This article explores its legal framework, process, recent changes, and significance for investors and companies alike TYPES DIVIDEND DISTRIBUTION Final Dividend : Declared at the Annual General Meeting (AGM) based on the Board’s recommendation, a final dividend is paid from accumulated or current year’s profits after the financial year ends. Once approved, it becomes a legal obligation for the company to pay shareholders. Interim Dividend : Declared by the Board during the financial year (before the AGM) from available profits or surplus. It doesn’t require shareholder approval but becomes binding once the payment process begins. Special Dividend : A one-time dividend declared under exceptional circumstances, such as extraordinary profits, asset sales, or surplus reserves. It’s not recurring and often signals strong financial performance or strategic restructuring. Stock Dividend : Instead of cash, shareholders receive additional shares in proportion to their existing holdings. It helps companies conserve cash while rewarding investors and increasing share capital. KEY ISSUES Depreciation Takes Precedence : Dividend can only be declared after providing for depreciation as per the Act. This ensures profits are genuine and not overstated. Cash is Preferred :Dividends are usually paid in cash, though profits may be capitalized for issuing bonus shares. Bonus shares are not considered dividends but a value transfer. Board’s Role :Final dividend needs shareholder approval, but the Board’s recommendation is key. For interim dividends, the Board alone can declare and approve. Investor Awareness :Investors should track dividend policies and announcements. Frequent dividends often indicate financial stability and strong governance. At SKMC Global ensures seamless dividend declaration by handling compliance, approvals, and filings under the Companies Act, 2013. We help businesses maintain transparency, governance, and shareholder confidence. www.skmcglobal.com +91 989-125-5499 info@skmcglobal.com

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