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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.
- Is Board right in recommending a dividend of Rs. 5/- per share out of free reserves?
- Can Board declare the dividend though it is not approved by AGM?
- Can the Board give dividends in the form of gifts?
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Solution
- Yes, the Board can recommend a dividend of Rs. 5/- per share out of free reserves. This is because companies are allowed to pay final dividend out of their free reserves.
- No, the Board cannot declare the dividend without shareholders’ approval at the AGM. The dividend, as recommended by the Board of Directors, is approved and declared by a resolution passed at the Annual General Meeting by the shareholders.
- No, the Board cannot give dividends in the form of gifts. This is because dividends must be paid in cash and not in kind.
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