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Sumit Phadnis (Lawyer)     13 January 2009

Can a loss making company declare a dividend

Hello Friends,

I would like to know your views on following mentioned query:

One Private Limited Company is suffering from losses since its incorporation and have no monies in their reserve account. So, can it be possible to declare the dividend by such a comapny?

Thanks in advance.

Sumit Phadnis



Learning

 6 Replies

jayachandran (legal)     13 January 2009

no

yogesh dave (service)     13 January 2009

dividen is always paid out of profit

Manish Singh (Advocate)     13 January 2009

how could it be possible..?

Nu.Delhi.Law.Fora. (Advocate-on-Record Supreme Court of India)     13 January 2009

Dear Sir,


With respect to specific query, I am of the following view:


The Companies Act 1956 requires dividend declared at the AGM to be actually paid within 30 days. Dividend is one area where the board of directors has complete and unquestioned freedom. When to declare, how much to declare and in what form to declare are all left to their discretion.


And there are no special regimes for private companies in this regard except that the income-tax law deems loans and advances given by closely-held companies to their substantial shareholders as dividend taxable in the hands of the recipients which is immune from distribution tax.


Pl examine The Companies (Temporary Restriction on Dividends) Act, 1974 for this matter.


Details opinion shall follow soon.


Trust this would suffice.


Rabin Majumder


New Delhi


 

Manish Singh (Advocate)     14 January 2009

Dear Mr Rabin.


the said has been repealed in the year 2000 n that was only applicable to certain class of establishments in certain cases under he provisiobns of the act.


all the dividends declared by a company is egulated by section 205 of the compn. act which specifically says that dividend must be declared only out of profits. directors cant do nothing on this matter. 

Sumit Phadnis (Lawyer)     14 January 2009

I am thankful to your valuable views.


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