ISSUE OF SHARES. — SPCC STD 12 Commerce — Question
Gujarat BoardEnglish MediumSTD 12 CommerceSPCCISSUE OF SHARES.4 Marks
Question
Write a note on Share Dividend.
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Answer
Share Dividend A company pays tax at the end of the year out of profit earned for a year.
The amount of profit oft after the payment of tax is called divisible profit.
A certain amount of the divisible profits is retained as a reserve by the company.
The remaining profit is distributed among shareholders, and is called dividend.
Thus dividend means, “The share of divisible profit distributed by the company among its shareholders on the basis of paid up share capital on shares held by them in form of cash or share or in any other form."
Here it is important to note that as per the Indian Companies Act dividend can be paid only in cash.
Dividend can be of two types :-(i) Interim dividend and (ii) Final or Annual dividend.
Interim dividend is paid semi-annually during the year.
Final or annual dividend is paid at the end of the year, out of profit for the year.
Dividend is paid to equity shareholders, as well as, to preference shareholders.
Dividend paid on preference shares, at a fixed rate of dividend, before paying dividend on equity shares is called preference dividend.
As per provisions of The Companies Act, preference shareholders have prior right over equity shareholders in terms of receiving dividend.
Therefore preference dividend is paid first and the then Board of Directors recommends how much of the profit can he distributed as equity dividend.
The equity dividend recommended by the Board of Directors is approved by shareholders in the Annual General Meeting of the company.
After the approval of equity dividend in the Annual General Meeting of the company, it is paid within 60 days of such approval.
Equity dividend is based on the profits of the company and need of funds for the company in future.
The Board of Directors decides the rate of equity dividend by taking into consideration the need of funds for the company.
Thus, it is not legally necessary for a company to declare and equity dividend every year and its rate may be changed year to year.
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