{"id":2573,"date":"2019-10-02T07:35:20","date_gmt":"2019-10-02T07:35:20","guid":{"rendered":"https:\/\/commerceiets.com\/?p=2573"},"modified":"2019-10-02T07:35:20","modified_gmt":"2019-10-02T07:35:20","slug":"divisible-profits","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/divisible-profits\/","title":{"rendered":"DIVISIBLE PROFITS"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/commerceiets.com\/divisible-profits\/#MEANING\" title=\"MEANING\">MEANING<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/commerceiets.com\/divisible-profits\/#LEGAL_RESTRICTIONS\" title=\"LEGAL RESTRICTIONS \">LEGAL RESTRICTIONS <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/commerceiets.com\/divisible-profits\/#FACTORS_INFLUENCING_DIVISIBLE_PROFITS\" title=\"FACTORS INFLUENCING DIVISIBLE PROFITS\">FACTORS INFLUENCING DIVISIBLE PROFITS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/commerceiets.com\/divisible-profits\/#PROVISIONS_REGARDING_DIVISIBLE_PROFITS\" title=\"PROVISIONS REGARDING DIVISIBLE PROFITS\">PROVISIONS REGARDING DIVISIBLE PROFITS<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/commerceiets.com\/divisible-profits\/#DECLARATION_OF_DIVIDEND\" title=\"DECLARATION OF DIVIDEND\">DECLARATION OF DIVIDEND<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/commerceiets.com\/divisible-profits\/#DIVIDEND_AS_DEBT\" title=\"DIVIDEND AS DEBT\">DIVIDEND AS DEBT<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/commerceiets.com\/divisible-profits\/#REVOCATION_OF_DECLARED_DIVIDEND\" title=\"REVOCATION OF DECLARED DIVIDEND\">REVOCATION OF DECLARED DIVIDEND<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/commerceiets.com\/divisible-profits\/#DEPOSIT_OF_DIVIDEND\" title=\"DEPOSIT OF DIVIDEND\">DEPOSIT OF DIVIDEND<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/commerceiets.com\/divisible-profits\/#SOURCES_OF_DIVISIBLE_PROFITS\" title=\"SOURCES OF DIVISIBLE PROFITS\">SOURCES OF DIVISIBLE PROFITS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/commerceiets.com\/divisible-profits\/#DISTRIBUTION\" title=\"DISTRIBUTION\">DISTRIBUTION<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/commerceiets.com\/divisible-profits\/#MODE_OF_PAYMENT\" title=\"MODE OF PAYMENT\">MODE OF PAYMENT<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/commerceiets.com\/divisible-profits\/#PROFITS_MUST_BE_IN_THE_LIMITS_PRESCRIBED_BY_ARTICLES_OF_ASSOCIATION\" title=\"PROFITS MUST BE IN THE LIMITS PRESCRIBED BY ARTICLES OF ASSOCIATION\">PROFITS MUST BE IN THE LIMITS PRESCRIBED BY ARTICLES OF ASSOCIATION<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/commerceiets.com\/divisible-profits\/#FOLLOWING_OF_ACCOUNTING_PRINCIPLES\" title=\"FOLLOWING OF ACCOUNTING PRINCIPLES\">FOLLOWING OF ACCOUNTING PRINCIPLES<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/commerceiets.com\/divisible-profits\/#SHAREHOLDERS_APPROVAL\" title=\"SHAREHOLDERS APPROVAL\">SHAREHOLDERS APPROVAL<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/commerceiets.com\/divisible-profits\/#DEDUCTIONS\" title=\"DEDUCTIONS\">DEDUCTIONS<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h3 class=\"wp-block-heading\" style=\"text-align:center\"><span class=\"ez-toc-section\" id=\"MEANING\"><\/span>MEANING<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\">Divisible Profits are the profits that are legally available for distribution among the shareholders by way of dividend. These are the profits which the directors consider should be distributed after making provision for past losses and reserves.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"text-align:center\"><span class=\"ez-toc-section\" id=\"LEGAL_RESTRICTIONS\"><\/span>LEGAL RESTRICTIONS <span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\"><strong>UNDER SECTION 123 (1):<\/strong> As per this section, the payment of dividends can be made either out of profits of the company for the year or out of undistributed profits of the previous year. <\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>UNDER SECTION 123 (2): <\/strong>As per this section, \u2018Profit\u2019 for the purpose of paying dividends must be arrived at after making provisions for depreciation.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"text-align:center\"><span class=\"ez-toc-section\" id=\"FACTORS_INFLUENCING_DIVISIBLE_PROFITS\"><\/span>FACTORS INFLUENCING DIVISIBLE PROFITS<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\">The following are the factors that influence the profits distributable as dividends:<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>CAPITAL PROFIT: <\/strong>Divisible profit can be paid, if there is some capital profit.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>CAPITAL LOSS:<\/strong> In case of capital loss, dividend can be paid out of the current profits.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>DEPRECIATION:<\/strong> Depreciation is charged before distribution of divisible profits. If the amount of depreciation will be more, there will be less divisible profits. If the amount of depreciation is small, there will be more divisible profits.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>TRANSFER TO RESERVES: <\/strong>Divisible profits can be calculated only after making transfer to the reserves. The balance of the reserves shall not fall below 15% of the paid up capital of the company.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>OTHER FACTORS: <\/strong>Other factors that affect the divisible profits amount are:<\/p>\n\n\n\n<ul><li>Working capital requirements of the company<\/li><li>Past dividend payout history<\/li><li>Dividend on preference shares.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"text-align:center\"><span class=\"ez-toc-section\" id=\"PROVISIONS_REGARDING_DIVISIBLE_PROFITS\"><\/span>PROVISIONS REGARDING DIVISIBLE PROFITS<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"DECLARATION_OF_DIVIDEND\"><\/span>DECLARATION OF DIVIDEND<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">Divisible profits are to be declared as dividend only after\nproviding for depreciation and previous year losses. The board of directors has\nthe right to recommend the rate of dividend or lower the same, but they cannot\nincrease the amount.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"DIVIDEND_AS_DEBT\"><\/span>DIVIDEND AS DEBT<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">A dividend, when declared, becomes a debt, and a shareholder\nis entitled to suit a law for the recovery of the same after the expiry of the\ntime period.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"REVOCATION_OF_DECLARED_DIVIDEND\"><\/span>REVOCATION OF DECLARED DIVIDEND<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">A dividend once declared can never be revoked. However, the\ndividend illegally declared can be revoked.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"DEPOSIT_OF_DIVIDEND\"><\/span>DEPOSIT OF DIVIDEND<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">As per section 123 (4), the amount of dividend shall be\ndeposited in a separate bank account within 5 days from the date of\ndeclaration.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"SOURCES_OF_DIVISIBLE_PROFITS\"><\/span>SOURCES OF DIVISIBLE PROFITS<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">Section 123 of the Companies Act, 2013 the sources from\nwhere the divisible profits are distributed as dividends are:<\/p>\n\n\n\n<ul><li><strong>OUT OF CURRENT YEAR PROFITS: <\/strong>The dividend is declared after providing for depreciation. The amount of profits to be transferred as dividend is transferred to the General Reserve. <\/li><li><strong>OUT OF PAST YEAR PROFITS: <\/strong>The dividend can also be declared from the divisible profits of past years.<\/li><li>The divisible profits can also be provided out of the <strong>funds given by Central Government.<\/strong><\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"DISTRIBUTION\"><\/span>DISTRIBUTION<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The divisible profits should be distributed as dividends in\ntwo ways:<\/p>\n\n\n\n<ul><li><strong>FINAL DIVIDEND: <\/strong>Final dividend is proposed by the Board of Directors and approved by the shareholders at annual general meeting. The final dividend is paid in addition to the interim dividend. When a final dividend is declared, then interim dividend is not adjusted unless the resolution mentions it specifically.<\/li><li><strong>INTERIM DIVIDEND:<\/strong> Interim dividend represents the dividend paid by the company before the preparation of final accounts. In other words, an interim dividend is a dividend declared at any time between the two annual general meetings in anticipation of profits. It can be paid only if authorized by the Articles. <\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"MODE_OF_PAYMENT\"><\/span>MODE OF PAYMENT<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The profits can be distributed as dividends to the shareholders in the following ways:<\/p>\n\n\n\n<ul><li>By cash<\/li><li>By cheque<\/li><li>By issuing share warrants.<\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"PROFITS_MUST_BE_IN_THE_LIMITS_PRESCRIBED_BY_ARTICLES_OF_ASSOCIATION\"><\/span>PROFITS MUST BE IN THE LIMITS PRESCRIBED BY ARTICLES OF ASSOCIATION<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The Articles of Association being the Doctrine of Indoor\nManagement, describes the limits within which the divisible profits must be\ndeclared as dividends.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"FOLLOWING_OF_ACCOUNTING_PRINCIPLES\"><\/span>FOLLOWING OF ACCOUNTING PRINCIPLES<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The accounting principles such as <\/p>\n\n\n\n<ul><li>Going Concern Concept<\/li><li>Consistency Concept<\/li><li>Conservatism Concept<\/li><li>Matching Concept <\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\">Must be applied while calculation of profits to be distributed as dividends.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"SHAREHOLDERS_APPROVAL\"><\/span>SHAREHOLDERS APPROVAL<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">Dividend cannot be distributed as dividend without the approval of shareholders. Annual general meeting is to be conducted for the declaration of dividend.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"DEDUCTIONS\"><\/span>DEDUCTIONS<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The following deductions should be made out of the divisible\nprofits to distribute it as dividends;<\/p>\n\n\n\n<ul><li><strong>Under section 205(2): Current Depreciation<\/strong><\/li><li><strong>Under section 205 (2a): Transfer to General reserve<\/strong><\/li><li><strong>Under Section 205 (a): Arrears of depreciation<\/strong><\/li><li><strong>Under section 252 (b): Past Losses.\u00a0 <\/strong><\/li><\/ul>\n","protected":false},"excerpt":{"rendered":"<p>MEANING Divisible Profits are the profits that are legally available for distribution among the shareholders by way of dividend. These are the profits which the directors consider should be distributed after making provision for past losses and reserves. LEGAL RESTRICTIONS UNDER SECTION 123 (1): As per this section, the payment of dividends can be made&#8230;<\/p>\n<p class=\"more-link-wrap\"><a href=\"https:\/\/commerceiets.com\/divisible-profits\/\" class=\"more-link\">Read More<span class=\"screen-reader-text\"> &ldquo;DIVISIBLE PROFITS&rdquo;<\/span> &raquo;<\/a><\/p>\n","protected":false},"author":2,"featured_media":2575,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[102],"tags":[173],"_links":{"self":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/2573"}],"collection":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/comments?post=2573"}],"version-history":[{"count":0,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/2573\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media\/2575"}],"wp:attachment":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media?parent=2573"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/categories?post=2573"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/tags?post=2573"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}