Explain the legal rules prescribing the circumstances in which a company may or may not pay a dividend.

No dividend shall be payable a company otherwise than out of profit.
• Dividend does not earn interest against the company.
• Directors recommend dividend and members declare the same in general meeting.
• Members cannot declare dividend in excess of the rate recommended the board.
• Once dividend is declared, it becomes a debt payable to members.
• Directors may from time to time pay to members such interim dividend as the profits of the company may permit.
• A company must not pay dividend, it the same renders it unable to pay debts as and when they fall due.
• Losses in circulating assets of the current accounting period must be made good before dividend is declared.
• Losses in circulating assets of the previous accounting period need not be made good before dividend is declared.
• A company is not legally obliged to make provision for depreciation before dividend is declared.
• A profit made on the sale of a fixed asset may be treated as profit available for distribution.

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