Dividends are a part of the profits of the company. Dividends of the trading company are distributed among the members in proportions to their shares at the end of the financial year. It should be never paid out of the capital. The directors decide to divide the profit or they may not distribute the profit, it depends upon their own decision.
The shareholders want to go maximum return on the capital. A successful company always declares regular rate of dividend to the shareholders.
Dividend Payment Rules
1. Payment out of the profit :-
Dividend should be paid out of the profits of the company and not out of the capital.
2. Not a whole profit :-
It is not necessary that a company may divide whole profit among the shareholders.
3. Dividend on bearer shares :-
The dividend on the bearer shares is paid on the production or a coupon to the bankers of the company.
4. Dividend on registered shares :-
The registered shareholders get the payment of dividend by means of a dividend warrant from the company bankers.
5. Joint responsibility :-
Directors who are a party to the payment of dividend a capital of the company are jointly responsible to repay the amount.
6. Dividend on ordinary shares :-
Dividend an ordinary shares changes according to the profits made by the company every year.
7. Payment in cash :-
Dividend must be paid in cash.
8. Liability of the company :-
A dividends becomes the liability of the company from the date of declaration.
9. Payment of dividend :-
Dividends must becomes the liability of the company within 45 days of the date of declaration.
10. Proportion of profit :-
A subject to the provision of articles company should pay dividend to the shareholders out of profit in proportion to their shares.