Study the following case/situation and express your opinion :
The Board of Directors of STAR Co. Ltd. which is a listed company recommends a dividend of ₹ 15/- per share to be paid in cash.
- Is it justified to pay the dividend firstly to its Preference Shareholders and then after to Equity Shareholders?
- Is the AGM required to approve the same?
- Can the company pay dividend in cash?
- Yes, it is justified to pay the Preference shareholders first and then the Equity Shareholders. Preference shareholders are entitled to dividends before it is paid to the equity shareholders as per the terms of the issue of preference shares. Equity shareholders will get dividends from residual profits. i.e. after paying to preference shareholders.
- Yes, AGM is required to approve the dividend. 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.
- Dividend payable in cash should be paid by cheque or warrant or by electronic mode to the entitled shareholder.
Concept: Legal Provisions on Dividend
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