Steps to be taken by a Company to comply with the dividend declaration & payment
As per Secretarial Standard-3 you have to follow below given principles for the declaration and payment of dividend on equity and preference shares. It is to be noted that sec-8 companies are prohibited from paying dividend.
Sources
A company may pay dividend out of one or more of the following:-
1.) Profit of the current year after providing depreciation.
2.) Profit of the past year after providing depreciation for the past years.
3.) Out of money provided by the Central or State Government for payment of dividend in pursuance of companys guarantee.
Dividend not to be declared if the company has defaulted in :-
1.) Acceptance of deposits compliances.
2.) Redemption or interest payment of debentures
3.) Redemption or creation of capital redemption reserve of preference shares.
4.) Payment of declared dividend in case of current or past years.
5.) Repayment of any term loan or interest to a bank or FI.
Sources which cannot be used for payment
1.) Amalgamation reserve or capital redemption reserve or revaluation reserve.
2.) Securities premium account.
3.) Out of profits on reissue of forfeited shares.
4.) Out of profit earned prior to incorporation.
For declaration of interim dividend Board approval is required, approval of member is not required.
Unpaid Dividend
Dividend remaining unpaid or unclaimed after 30 days from the date of its declaration shall be transferred to a special bank account titled Unpaid Dividend Account. Transfer should be done within 7 days. Any amount unpaid for 7 years from the date of transfer to the unpaid Dividend Account along with interest accrued shall be transferred to the Investor Education and Protection Fund.
Disclosures
A.) Notes Accounts :- Aggregate of Dividend proposed to be distributed.
B.) Balance Sheet :- Unpaid Dividend Account with accrued interest under Current Liabilities and Provisions.
C.) Directors Report :- Interim Dividend paid and proposed Final Dividend.
D.) Annual report :- Total amount lying in Unpaid Dividend Account in respect of last 7 years and due for transfer to IEPF. Also amount transferred to IEPF during the year.
Please note that these principles are recommendatory but it is always advisable to follow the above principles for being a compliant company.

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