The decision for distributing or
paying a dividend is taken in the meeting of Board of Directors and
in confirmed generally by the annual general meeting of the
shareholders. The dividend can be declared only out of divisible
profits, remained after setting of all the expenses, transferring the
reasonable amount of profit to reserve fund and providing for
depreciation and taxation for the year. It means if in any year,
there is not profits, no dividend shall be distributed that year.
The shareholders cannot insist upon the company to declared the
dividend. It is solely the discretion of the directors. Aunt hinted
that the dividend was an income of the owners of the corporation
which they received in the capacity of the owner. Distribution of
dividend involves reduction of current assets (cash) but not always.
Stock dividend or bonus shares is an exception to it.