In India, publicly listed companies are governed by the Companies Act, 2013, which outlines the rules and regulations regarding dividend declarations. While there are no explicit restrictions on the number of times a company can declare dividends within a financial year, there are specific conditions and guidelines that must be adhered to.
Key Provisions of the Companies Act, 2013
- Declaration of Dividends: According to Section 123 of the Companies Act, 2013, dividends can only be declared from the profits of the company. The section states:
- A company can declare dividends out of the profits of the financial year after providing for depreciation.
- In case of inadequacy of profits, dividends can only be declared out of the accumulated profits of previous years.
- Board Approval: Before declaring dividends, the company’s board of directors must meet to approve the declaration. This decision is typically taken during the board meeting and is subject to the company’s financial health.
- Shareholder Approval: For final dividends, shareholder approval is required at the Annual General Meeting (AGM). Interim dividends, on the other hand, can be declared by the board without needing prior approval from shareholders.
- Payment Timeline: Once a dividend is declared, it must be paid within 30 days. If not paid within this timeframe, the company may incur penalties.
- Frequency of Dividends: While companies can declare dividends multiple times within a financial year, it is contingent upon having sufficient profits and cash flows. A company may choose to declare interim dividends in addition to the final dividend declared at the AGM, depending on its performance throughout the year.
Practical Considerations
Investors should note that while there are no legal restrictions on the number of dividends declared, companies often take into account their financial stability and market conditions. A company that consistently declares dividends is typically viewed positively by investors, as it reflects financial health and shareholder value.
While there are no strict limits on how many times a publicly listed company in India can declare dividends, adherence to the Companies Act, 2013, along with prudent financial management, plays a crucial role in these decisions. Investors should stay informed about company announcements and financial health to better understand their dividend prospects.