Dividend is said to be the return on a member‟s investment. Technically, it is the member‟s share of a company‟s profit.
Payment of dividend companies is governed various rules:
Under Article 116 of Table A “No dividend shall be paid otherwise than out of profit.”
Under Article 114 of Table A directors recommend dividend and the same is declared members in general meeting. However members cannot declare dividend in excess of the amount recommended the board.
Under Article 115 of Table A directors may from time to time pay to members such interim dividend as is justified the profits of the company.
Directors may before recommending dividend set aside out of the profits of the company such sums as they deem proper as reserve.
Directors may deduct from any dividend payable to any member all sums of money payable him to the company on account of calls or otherwise.
Under Article 122 of Table A “No dividend shall bear interest against the company”.
Dividend is generally payable within 42 days of declaration.
Dividend may be paid in cash or cheque or warrant.
Companies are not legally obliged to make provision for depreciation before dividend is declared.
Dividend cannot be paid if this would result in the company‟s inability to pay debts as they fall due.
Losses of fixed assets need not be made good before treating a revenue profit as available for dividend.
Losses of circulating assets in the current accounting period must be made good before dividend is paid.
A realised profit on the sale of fixed assets may be treated as a profit available for dividend.
Unrealised profit may be treated as profit available for distribution.
Losses on circulating assets made in previous accounting periods need not be made good before dividend is paid.