Dividend: Claim It Before It Is Too Late

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: Every investor expects to earn regular and decent returns on his investment. One of the most popular instruments of investment is shares in a public listed company. It could be preference shares or equity shares, though due to various factors investment in equity shares is more popular than in preference shares.

While preference shares carry an assurance of fixed rate of dividend, there is no such guarantee in the case of equity shares. However, a holder of equity shares would expect to make money through capital appreciation, which could be in addition to the dividend that he may earn on the equity shares.

A question that arises in this context is, whether a company is bound to declare dividend on its share capital. In the case of preference shares, a company is normally required to declare dividend annually or in accordance with the terms of issue of preference shares. It needs to be noted that, declaration of dividend presupposes earning of profit by a company, though in some cases a company can declare dividend out of its reserves.

In other words, in case of a loss making company, even a preference shareholder may be denied his due. If the preference shares are cumulative preference shares, then the unpaid dividend on such shares would be carried forward to the subsequent years. However, if the preference shares are non-cumulative, then the inability of the company to declare a dividend in a particular year will not give any right to the preference shareholders to carry forward the unpaid dividend.

So far as equity shares are concerned, by it’s very nature, no company can promise any fixed dividend. Moreover, equity shareholders rank only after preference shareholders. At the same time, it is natural for an equity shareholder to expect that the company in which he is holding the shares would perform well and declare a dividend from time to time. With a view to protect the interests of investors, the Companies Act, 1956 (the Act) imposes certain obligations on a company declaring a dividend.