Private Limited Company: Dividend’s Declaration and Payment

Your dream to start a business in India can’t come to realization if you don’t have a proper business entity to support it. A Private Limited Company Registration is India’s most prominent form of business entity. From veterans to novices, from budding start-ups to established entrepreneurs, and from north India to south India, it is considered the best business entity.

Exceptions to the Dividend Declaration

Any private limited company must not declare a dividend or pay it for any financial year. But there are some exceptions to this enlisted in the following points:

The profits of the Company for the concerned financial year arrived after providing for depreciation
The profits of the Company collected for any previous financial year or years arrived after providing for depreciation in accordance with the provisions and the remaining undistributed dividend, or both
The money provided by the Central or the State Government for the dividend payment by the Company in pursuit of a guarantee by the concerned Government

Profit Transfer

The Private Limited Company can, before the declaration of the dividend in the concerned financial year, transfer the percentage of its profits for that year as the Company seems appropriate to the reserves of the Company.

Accumulated Profits from the previous years

In case of owing to inadequacy or absence of profits in any financial year, any registered Private Limited Company can propose to declare its dividend out of the accumulated profits earned by it in previous years. The Private Limited Company can then transfer the dividend to the reserves. But such declaration of the dividend must not be made except in accordance with rules prescribed on this behalf by the Authority. Also, no Private Limited Company must declare or pay dividends from its reserves other than free reserves.

Depreciation

No company should declare a dividend unless it carries over losses and depreciation, which are not provided in the previous year(s), set off against the Company’s profit for the current year. The depreciation accounted for by the Private Limited Company can be provided in accordance with the provisions of Schedules of the Companies Act of 2013.

Dividend declared by the BoD

The Board of Directors (BoD) of a company can declare interim dividend during the current financial year. The Private Limited company can declare its dividend out of the surplus in the profit and loss account. Also, the Company can declare the dividend out of profits of the financial year in which such interim dividend is sought to be declared.

Dividend in case the Private Limited Company incurs Loss

Suppose the Company has incurred a Loss during the current fiscal year up to the quarter’s end. This is immediately preceding the date of declaration of interim dividend. In that case, the PLC must not declare the interim dividend at a rate higher than the average rate of dividends declared by the Company. If at all done, the dividend must be declared during the immediately preceding three financial years.

Dividend Deposition

The Pvt Ltd company registration must deposit the dividend amount, including the interim dividend, in a scheduled bank. The PLC must deposit in a separate account within five days from the dividend declaration date.

Share Payment

No Pvt Ltd company must pay the dividend in respect of any share except to the registered shareholder of such claim, his order, or his banker. The Company must not pay the dividend except in cash.

Paid-up Bonus Shares

A Private Limited Company Registration cannot prohibit a company’s capitalization of profits or reserves from issuing entirely paid-up bonus shares. Also, the Company must not restrict the payment when it doesn’t pay on any shares held by its members.

Also Read: Legal Metrology Model Approval Certificate: Registration Process

Paying the Shareholder

The Company can pay the shareholder’s dividend for the payment in the following manner:

Cheque
Cash
Warrant
Any electronic mode

Eligibility criteria for Private Limited Company Registration in India

The applicant must observe the following pre-conditions for the online Registration of a Pvt Ltd Company:

Minimum two directors
Minimum two shareholders
At least one director should be from India
Maximum 200 shareholders.

Documents required for Private Limited Company Registration in India

In regard to the new online Pvt Ltd Company Registration in India, the following documents are needed:

Self-attested PAN card copy
One (Colour) Photograph
Self-attested copy of any one of the Identity Proof like Driving License, Passport, or Voter ID.
Self-attested copy of any one of the Address Proof like Bank Pass Book/Bank Statement, Telephone Landline Bill/ Mobile Bill, or Electricity Bill.
For the Company Address proof Electricity Bill, Telephone Bill, Mobile Bill or Gas Bill AND Rent Agreement (If Rented) AND NOC for doing Business & for taking Registration.

Points to Ponder for Private Limited Company Registration –

During the divdend’s declaration for a Pvt Ltd Company, there are some things which you need to keep in mind. Please read the explaination of the below mention points in the above article –

Exceptions to the Dividend Declaration
Profit Transfer
Accumulated Profits from the previous years
Depreciation
Dividend declared by the BoD
Dividend in case the Private Limited Company incurs Loss
Dividend Deposition
Share Payment
Paid-up Bonus Shares
Paying the Shareholder