Chapter 9: Distribution of Profits

Question 1

Basics of Dividend (2)

Answer 1

• Company has an implied power to use its profits to pay dividends to its shareholders. (Unless specifically restricted by MOA & AOA)
• Dividends will be either in cash or in the form of shares of listed company held by the distributing company.

Question 2

Restriction on declaration of dividend (2)

Answer 2

• Dividend cannot be declared out of profits from sale of immovable property or item of
  capital nature except:
  > Net Profit on a business that buys and sells assets of capital nature
• Dividend cannot be declared from any unrealized gain due to re-measurement of Investment Property

Question 3

Payment of dividends (3+3)

Answer 3

• Listed co. = Electronically only
• Other co. = option to shareholders of:
  > Cross cheque
  > dividend warrant
  > electronic
• Shareholders can change the payment option via written request with all requisite details any time during the year

Question 4

Penalty for delay in payment (more than days specified by SECP) (3+2)

Answer 4

• Any one or both:
  > CEO fined up to Rs. 5 million
  > Imprisoned for up to 2 years
• CEO Ineligible to become director or CEO of any co. for next 5 years

Question 5

Circumstances in which delay in payment of dividend shall not be an offense (6)

Answer 5

In following cases, Company may withhold dividend after obtaining prior approval of SECP within 45 days of declaration of dividend:

• cannot be paid due to operation of any law
• If shareholder’s instructions cannot be followed
• dispute on regarding the right to receive dividend
• company has withheld the payment of dividend against any sum recoverable from shareholder
• If non- payment of dividend or non -posting of the warrant was not due to any default on part of the company

Company may also withhold dividend of a member where he has not provided the complete information or documents as specified by SECP.

Question 6

Interim dividend (3)

Answer 6

• Directors may propose and pay interim dividend BEFORE end of year
• Must be paid, within 10 working days from:
  >Commencement of book closure for this purpose
  or
  >Directors Meeting (if books were not closed for this purpose)

Note: Listed Company shall ensure that book closure must be started within 15 days of approval

Question 7

Final dividend (3)

Answer 7

• Proposed by directors and approved by members in AGM
• Members may reduce, accept or reject this proposed dividend (can’t increase)
• Paid within 15 working days of declaration

(Working days mean the days in which banks are open)

Question 8

What is Book Closure? (7) TC7-30-15-N-L2

Answer 8

1. a time period during which a company will not handle REQUEST TO TRANSFER shares(or debentures)
2. to IDENTIFY CUT-OFF DATE for determining which members (or debenture-holders) will receive a notice of a meeting or dividend (or interest) etc.
3. Company may, by giving at least 7 DAY NOTICE, close register of members or any part of it
4. It can be closed for any days not exceeding in the WHOLE 30 DAYS in each year
5. SECP may, on application of company extend the 30 days’ period for a FURTHER 15 DAYS.
6. For listed company, notice for closure, must be given in English and Urdu languages at least in 1 issue each of a daily newspaper
7. Default of above = Penalty Level 2