Dividends:

Paying a dividend is the usual way for a company to distribute a share of its profits among the shareholders. A detailed consideration of these is presently beyond the scope of this database, but the main purpose behind these provisions is to prohibit companies from making distributions (including dividends) except out of profits. In a public company, the usual practice is for the directors to declare and pay an interim dividend based on the accounts for the first six months of the company's financial year. The directors will then recommend a final dividend to the Annual General Meeting based on the profits made in the full year, and the AGM then passes a resolution declaring that dividend. In private companies the practice varies widely. If the company is making profits there are essentially two ways in which those profits can be paid over to the people who own and run the company. One is for the directors (or others, e.g. family members) to be paid salaries or fees for the work they have done for the company. Such salaries or fees will be employment income for the recipient and must usually be taxed under the PAYE system, with the company deducting tax at source. Both the company and the director will also be liable to make National Insurance contributions. The other way of taking money out of the company is for the company to pay dividends. These are paid to shareholders (rather than directors) and (unless the company has special articles) will be paid in accordance with the rights of the respective shareholders. Dividends are taxable as investment income in the shareholder hands. The tax rates for dividends are generally lower than for other sources of income.

DIVIDENDS AND OTHER DISTRIBUTIONS:

Procedure for declaring dividends:
(1) The company may by ordinary resolution declare dividends, and the directors may decide to pay interim dividends. (2) A dividend must not be declared unless the directors have made a recommendation as to its amount. Such a dividend must not exceed the amount recommended by the directors. (3) No dividend may be declared or paid unless it is in accordance with shareholders' respective rights. (4) Unless the shareholders' resolution to declare or directors' decision to pay a dividend, or the terms on which shares are issued, specify otherwise, it must be paid by reference to each shareholder's holding of shares on the date of the resolution or decision to declare or pay it.

(5) If the company's share capital is divided into different classes, no interim dividend may be paid on shares carrying deferred or non-preferred rights if, at the time of payment, any preferential dividend is in arrears.

(6) The directors may pay at intervals any dividend payable at a fixed rate if it appears to them that the profits available for distribution justify the payment. (7) If the directors act in good faith, they do not incur any liability to the holders of shares conferring preferred rights for any loss they may suffer by the lawful payment of an interim dividend on shares with deferred or non-preferred rights.

Payment of dividends and other distributions

(1) Where a dividend or other sum which is a distribution is payable in respect of a share, it must be paid by one or more of the following means(a) Transfer to a bank or building society account specified by the distribution recipient either in writing or as the directors may otherwise decide; (b) Sending a cheque made payable to the distribution recipient by post to the distribution recipient at the distribution recipient's registered address (if the distribution recipient is a holder of the share), or (in any other case) to an address specified by the distribution recipient either in writing or as the directors may otherwise decide; (c) sending a cheque made payable to such person by post to such person at such address as the distribution recipient has specified either in writing or as the directors may otherwise decide; or (d) Any other means of payment as the directors agree with the distribution recipient either in writing or by such other means as the directors decides. (2) In the articles, "the distribution recipient" means, in respect of a share in respect of which a dividend or other sum is payable, (a) The holder of the share (b) If the share has two or more joint holders, whichever of them is named first in the register of members; or (c) If the holder is no longer entitled to the share by reason of death or bankruptcy, or otherwise by operation of law, the transmitted.

No interest on distributions
The company may not pay interest on any dividend or other sum payable in respect of a share unless otherwise provided by(a) The terms on which the share was issued, or (b) The provisions of another agreement between the holder of that share and the company.

Unclaimed distributions:
(1) All dividends or other sums which are-

(a) Payable in respect of shares, and (b) Unclaimed after having been declared or become payable, may be invested or otherwise made use of by the directors for the benefit of the company until claimed. (2) The payment of any such dividend or other sum into a separate account does not make the company a trustee in respect of it. (3) (a) twelve years have passed from the date on which a dividend or other sum became due for payment, and (b) the distribution recipient has not claimed it, the distribution recipient is no longer entitled to that dividend or other sum and it ceases to remain owing by the company.

Non-cash distributions
(1) Subject to the terms of issue of the share in question, the company may, by ordinary resolution on the recommendation of the directors, decide to pay all or part of a dividend or other distribution payable in respect of a share by transferring non-cash assets of equivalent value (including, without limitation, shares or other securities in any company). (2) For the purposes of paying non-cash distribution, the directors may make whatever arrangements they think fit, including, where any difficulty arises regarding the distribution(a) Fixing the value of any assets; (b) Paying cash to any distribution recipient on the basis of that value in order to adjust the rights of recipients; and (c) Vesting any assets in trustees.

Waiver of distributions
Distribution recipients may waive their entitlement to a dividend or other distribution payable in respect of a share by giving the company notice in writing to that effect, but if(a) The share has more than one holder (b) More than one person is entitled to the share, whether by reason of the death or bankruptcy of one or more joint holders, or otherwise the notice is not effective unless it is expressed to be given, and signed, by all the holders or persons otherwise entitled to the share.

Provisions on dividends:
Subject to the provisions of the Act, the company may by ordinary resolution declare dividends in accordance with the respective rights of the members, but no dividend shall exceed the amount recommended by the directors. Subject to the provisions of the Act, the directors may pay interim dividends if it appears to them that they are justified by the profits of the company available for distribution. If the share capital is divided into different classes, the directors may pay interim dividends on shares which confer deferred or non-preferred rights with regard to dividend as well as on shares which confer preferential rights with regard to dividend, but no interim dividend shall be paid on shares carrying deferred or non-preferred rights if, at the time of payment, any preferential dividend is in arrears. Except as otherwise provided to the rights attached to shares, all dividends shall be declared and paid according to the amounts paid up on the shares on which the dividend is paid. A general meeting declaring a dividend may, upon the recommendation of the directors, direct that it shall be satisfied wholly or partly by the distribution of assets and, where any difficulty arises in regard to the distribution, the directors may settle the same and in particular may issue fractional certificates and fix the value for distribution of any assets and may determine that cash shall be paid to any member upon the footing of the value so fixed in order to adjust the rights of members and may vest any assets in trustees. No dividend or other moneys payable in respect of a share shall bear interest against the company unless otherwise provided by the rights attached to the share. Any dividend which has remained unclaimed for twelve years from the date when it became due for payment shall, if the directors so resolve, be forfeited and cease to remain owing by the company. A company may have shares which have a priority as to payment of a dividend (preference shares).

DIVIDENDS AND MANNER AND TIME OF PAYMENT THEREOF

Certain restrictions on declaration of dividends. (1) The company in general meeting may declare dividends; but no dividend shall exceed the amount Recommended by the directors. (2) No dividend shall be declared or paid by a company for any financial year out of the profits of the company made from the sale or disposal of any immovable property or assets of a capital nature comprised in the undertaking or any of the undertaking of the company, unless the business of the company consists, whether wholly or partly, of selling and purchasing any such property or assets, except after such profits are set off or adjusted against losses arising from the sale of any such immovable property or assets of a capital nature. Dividend to be paid only out of profits

No dividend shall be paid by a company otherwise than out of profits of the company. Dividend not to be paid except to registered shareholders or to their order or to their bankers. No dividend shall be paid by a company in respect of any share therein except to the registered holder of such share or to his order or to his bankers or to a financial institution nominated by him for the purpose. Nothing contained in sub-section (1) shall be deemed to require the bankers of a registered shareholder or the financial institution nominated by him to make separate application to the company for payment of the dividend. The dividend warrants shall be sent by a company by registered post unless the shareholder entitled to receive the dividend requires otherwise in writing.

Period for payment of dividend.

(1) When a dividend has been declared, it shall not be lawful for the directors of the company to withhold or defer its payment and the chief executive of the company shall be responsible to make the payment in the manner provided in section 250 within forty-five days of the declaration in the case of a listed company and within thirty days in the case of any other company. Explanation: Dividend shall be deemed to have been declared on the date of the general meeting in case of a dividend declared or approved in the general meeting and on the date of commencement of closing of share transfer for purposes of determination of entitlement of dividend in the case of an interim dividend and where register of members is not closed for such purpose, on the date on which such dividend is approved by the directors. (2) Where a dividend has been declared by a company but is not paid within the period specified in subsection (1), the chief executive of the company shall be punishable with imprisonment for a term which may extend to two years and with fine which may extend to one million rupees. Provided that no offence shall be deemed to have been committed within the meaning of the foregoing provisions in the following , i. ii. iii. iv. where the dividend could not be paid by reason of the operation of any law; where a shareholder has given directions to the company regarding the payment of the dividend where there is a dispute regarding the right to receive the dividend where, for any other reason, the failure to pay the dividend or to post the warrant within the period aforesaid was not due to any default on the part of the company; and

Reference:
Companies Ordinance, 1984 Corporate Law Corporate governance ordinance