1. Check Articles of Association (AOA): Ensure the company’s AOA authorises the declaration of dividends and if not amend the articles as per provisions of the Companies Act, 2013 will apply.
2. Financial Criteria: Dividend can only be declared out of:
Current year’s profits after providing for depreciation, or
Past profits transferred to reserves, or
Money provided by Government for dividend payment in case of guarantees.
Cannot declare dividend out of capital.
3. Board Meeting for Recommendation: Notice: Send notice to directors as per Section 173 and Secretarial Standards.
Agenda:
Approve financial statements (if year-end).
Recommend dividend amount and record date/book closure.
Fix date for shareholders’ meeting (if final dividend).
Outcome:
For final dividend: Board recommends, shareholders approve in general meeting.
For interim dividend: Board can directly declare without shareholders’ approval.
4. Shareholders’ Approval (for Final Dividend)
Convene AGM or EGM.
Pass an ordinary resolution declaring dividend as recommended by the Board (cannot increase beyond recommendation).
Record proceedings in minutes.
5. Compliance after Declaration
Deposit: Transfer the total dividend amount into a separate bank account within 5 days of declaration.
Payment Timeline: Distribute dividend to shareholders within 30 days of declaration.
FEMA / RBI Compliance – Dividend to Foreign Shareholder
Since the subsidiary or shareholder is located outside India, dividend payment will involve foreign remittance under FEMA rules.
1. Mode of Payment :Only through normal banking channels in freely convertible foreign currency and no payment in cash or by cheque payable abroad.
2. FEMA Guidelines: No prior RBI approval is generally needed if:
Shares are held on a repatriation basis under the automatic route.
Dividend is declared out of current or accumulated profits.
If the remittance is to a country identified under RBI’s caution list, prior approval may be required.
