(Section 123 of Companies Act, 2013)

In order to determine the amount of  dividend to be declared, the Company  would be required to  work out the actual financial position as on a particular date as to find out that the company has sufficient profit in accordance to Section 123 of the Companies Act 2013 and after providing for depreciation in accordance of Schedule II of Companies Act, 2013 and transfer of such percentage of its profits for that financial year as it may consider appropriate to the reserves of the Company and the Rules made thereunder subject to complying with the requirements, if any, as per Articles of Association of the Company, including percentage of the dividend proposed to be declared, deduction of tax at source, opening of Bank Account. In this regard, the following are the general provisions to be looked into by the Company.

 General Points:

The rate of dividend declared shall not exceed the average of the rates at which dividend was declared by it in the three years immediately preceding that year:

Provided that this sub-rule shall not apply to a company, which has not declared any dividend in each of the three preceding financial year.

The total amount to be drawn from such accumulated profits shall not exceed one-tenth of the sum of its paid-up share capital and free reserves as appearing in the latest audited financial statement.

The balance of reserves after such withdrawal shall not fall below fifteen per cent of its paid up share capital as appearing in the latest audited financial statement.

POSITION WHEN THE COMPANY INCURRED LOSS IN A PREVIOUS YEAR

The amount so drawn shall first be utilised to set off the losses incurred in the financial year in which dividend is declared before any dividend in respect of equity shares is declared.

No company shall declare dividend unless carried over previous losses and depreciation not provided in previous year are set off against profit of the company of the current year the loss or depreciation, whichever is less, in previous years is set off against the profit of the company for the year for which dividend is declared or paid

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