2. Sources of Dividend (Sec 123)

A company can declare and pay dividend from:

• Current year's profits (after providing for depreciation).
• Past years' undistributed profits (i.e., free reserves), after providing for depreciation.
• Both of the above.
• Money provided by the Central or State Government for dividend payment, in pursuance of a guarantee.

Declaration from Reserves

If profits are inadequate, a company can declare dividend out of free reserves, subject to certain conditions (Rule 3).

3. Payment of Dividend

• Declaration
  Dividend is declared at the AGM.
• Deposit in Bank
  The total dividend amount must be deposited in a separate scheduled bank account within 5 days of declaration.
• Payment to Shareholders
  Dividend must be paid (or warrants posted) within 30 days of declaration. Payment is made in cash (via cheque, warrant, or electronic mode) to the registered shareholder.
• Failure to Pay
  If the company fails to pay within 30 days, it must pay 18% p.a. simple interest for the period of default. Every director knowingly party to the default can face imprisonment up to 2 years and a fine.

4. Unpaid Dividend Account (Sec 124)

• Transfer to UDA
  Any dividend not paid or claimed within 30 days of declaration must be transferred to the "Unpaid Dividend Account" (UDA) within 7 days from the expiry of the 30-day period.
• Statement of Unpaid Dividend
  Within 90 days of transferring to UDA, the company must prepare a statement of unpaid dividends and post it on its website.
• Transfer to IEPF
  Money in the UDA that remains unpaid/unclaimed for 7 years must be transferred to the Investor Education and Protection Fund (IEPF). The corresponding shares are also transferred to the IEPF.

5. Books of Account (Sec 128)

• Every company must prepare and keep books of account, other relevant books and papers, and financial statements for each financial year.
• They must give a true and fair view of the company's affairs.
• They must be kept on an accrual basis and follow the double-entry system of accounting.
• Books must be kept at the Registered Office.
• They must be preserved for at least 8 financial years.

6. Financial Statements (Sec 129)

• Financial statements must give a true and fair view and comply with the accounting standards notified under Sec 133.
• They must be in the form prescribed in Schedule III.
• The Board of Directors must lay the financial statements before the company at every AGM.

Consolidated Financial Statements (CFS)

A company with one or more subsidiaries, associates, or joint ventures must prepare a CFS in addition to its standalone financial statements.

7. Board's Report (Sec 134)

• A report by the Board of Directors must be attached to the financial statements laid at the AGM.
• It includes key information like:
  • Financial summary
  • Dividend recommendation
  • Material changes affecting financial position
  • Details on CSR policy and initiatives
  • A Directors' Responsibility Statement

Directors' Responsibility Statement

This is a crucial part of the report where directors confirm that applicable accounting standards have been followed, proper accounting records are maintained, and the accounts are prepared on a going concern basis, among other things.

8. Corporate Social Responsibility (Sec 135)

• Applicable to companies with:
  • Net worth ≥ ₹500 crore, OR
  • Turnover ≥ ₹1000 crore, OR
  • Net profit ≥ ₹5 crore
  during the immediately preceding financial year.
• These companies must constitute a CSR Committee of the Board.
• They must spend at least 2% of the average net profits of the last 3 financial years on CSR activities.

Unspent CSR Amount

If the company fails to spend the required amount, it must specify the reasons in its Board's report and transfer the unspent amount to a specified fund (like PM National Relief Fund) or to an Unspent CSR Account for ongoing projects.

9. Internal Audit (Sec 138)

Certain classes of companies are required to appoint an internal auditor. This includes:

• Every listed company.
• Every unlisted public company meeting certain thresholds (e.g., turnover ≥ ₹200 crore).
• Every private company meeting certain thresholds (e.g., turnover ≥ ₹200 crore).

Who can be an Internal Auditor?

The internal auditor can be a Chartered Accountant, a Cost Accountant, or another professional as decided by the Board. They may or may not be an employee of the company.