ONCE AGAIN A FRESH START

MCA have recently launched a fresh incorporation procedure that reduces Procedures, Time and Cost for all new companies inorder to facilitate the young entrepreneurs. A glimpse of the incorporation procedure follows the article.

In this edition, we will be seeing about procedure for declaration of Interim and Final Dividend which is suggested by CS Gayatri Vaibhav Phatak. We will have our usual Legal terms and News Bites related to notifications by MCA, SEBI, RBI, IT and GST from this month whenever possible.

CS Saranya Deivasigamani,

CEO

DECLARATION OF DIVIDEND

Declaration and payment of dividend is ruled under section Chapter VIII of Companies Act, 2013 and section 115O of the Income Tax Act, 1961.

General provisions as per Companies Act

As per section 123, Dividend can be declared only out of profit after depreciation and other deductions of the current or previous financial years.

While computing profits any amount representing unrealised gains, notional gains or revaluation of assets and any change in carrying amount of an asset or of a liability on measurement of the asset or the liability at fair value shall be excluded. For govt. companies, it shall be the money provided by Central or State Government for payment of dividend.

While there is a loss, dividend shall not exceed the free reserves.

Dividends can be paid only out of free reserves and only after set off accumulated losses from the previous years against the profits of current year.

As per section 51, if the Article permits, the Company can pay dividend in proportion to it’s paid-up capital.

Declaration of Dividends out of Reserves

When there are inadequacy or absence of profits for the current year, the Company can declare dividend only out of free reserves on abiding the following conditions:

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: (shall not be applicable if 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 1/10 of the sum of its paid-up share capital and free reserves as appearing in the latest audited financial statement.
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.
The balance of reserves after such withdrawal shall not fall below 15% of its paid up share capital as appearing in the latest audited financial statement.

Interim Dividend

Can be declared anytime from closure of financial year till holding of AGM.
Shall be on surplus in the profit and loss account for the previous quarter.
In case the company has incurred loss during the current financial year up to the end of the previous quarter, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during the immediately preceding three financial years.

Restrictions

Dividend cannot be paid in form of shares (except for bonus issue or paying up amount of unpaid shares) or any consideration other than cash.
Payment can be made cheque or warrant or in any electronic mode to the shareholder entitled to the payment of the dividend.
A company which fails to comply with the provisions of sections 73 and 74 i.e. defaults in deposits shall not, so long as such failure continues, declare any dividend on its equity shares.

Income Tax Approach

Under Section 115O of the Income Tax Act, 1961 dividend can be declared on profit at the rate of 15% Dividend Distribution Tax (DDT). If the dividend is paid to a foreign subsidiary then Section 115BBD has to be followed.

DDT shall be paid on declaration or distribution or payment of dividend whichever is earliest.

Key Points on Incorporation Procedures

SPICe+ is an integrated Web form offering 10 services by 3 Central Govt Ministries & Departments. (Ministry of Corporate Affairs, Ministry of Labour & Department of Revenue in the Ministry of Finance) and One State Government (Maharashtra)

Mandatory requirements

SPICe+, SPICe+ MOA, SPICe+ AOA and AGILe+ to be filled on webform, downloaded into pdf, affix DSC and upload again in the system along with supporting documents.
Application of PAN and TAN through SPICe+.
Application for Bank Account through AGILe Pro (Only the preferred bank has to be chosen, the branch will be allotted by the bank on availability of the region of registered office)
GSTIN, EPFO, ESIC through AGILe Pro.
URC-1 is mandatory for Section 366 of the Companies Act, 2013 and Rule 3(2) of the Companies (Authorised to Register) Rules, 2014—Part I Company incorporation

Maximum Limits

5 times the Application can be modified even after generating pdf and affixing DSC but before submission. After which fresh application has to be started.
2 names are allowed in SPICe+ Name application.
20 Directors DSC can be affixed in INC-9.
3 Directors for DIN allotment by others and 5 for Producer Company.
2 resubmissions allowed after uploading the forms.
20,000 character limit for Main Object in filed 3(a) and 1,00,000 in field 3(b).

Other Services

Professional Tax Registration, only for the state of Maharashtra.
SPICe+ Part A—submit after filing Part A to reserve name or Proceed with Part B to file entire incorporation application.
INC-9 will be generated if applicable.

Applicable Fees

INR. 1,000 for name application
Zero Filing Fees for Authorised Capital upto INR. 15,00,000
INR. 66 for PAN (physical PAN will not be dispatched) and INR. 65 for TAN.
Stamp duty as applicable.

Legal Term

Pari Passu

adv. a Latin phrase that literally means “with an equal step” or “on equal footing”. Side by side; at the same rate or on an equal footing.

Month: February 2020

Declaration of Dividend