(a). Is Board right in recommending a dividend of Rs. 5/- per share out of free reserves?

Question

Study the following case/situation and express your opinion.

LMN Co Limited decides to declare a dividend for the financial year 2018-19 in which it has earned profits less than their expectations.

(a). Is Board right in recommending a dividend of Rs. 5/- per share out of free reserves?

(b). Can Board declare the dividend though it is not approved by AGM?

(c). Can the Board give dividends in the form of gifts?

Answer 1

(a) Yes, Board is right in recommending a dividend of Rs. 5/- per share out of free reserves, as dividends can be paid out of free reserves.

(b) No Board cannot declare the divided if it is not approved by AGM as dividends should be approved by shareholders by passing an ordinary resolution in AGM.

(c) No Board cannot give dividends in the form of gifts. It must be paid in cash, not in kind.