Distribution of Profits

Question 1

Basics of Dividend

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

Answer 2

▪ Dividend cannot be declared out of profits from sale of immovable property or item of
capital nature except
- Business of company consists of buying and selling such items of capital nature; and
- After such profits are adjusted against losses on sale of immovable properties or assets
of capital nature
▪ Dividend cannot be declared from any unrealized gain (gain related to unsold property)
arising out of re-measurement of investment property credited to Income statement.

Question 3

What is Book Closure?

Answer 3

▪ Closure of register of members (or debenture-holders) means a time period during which a
company will not handle requests to transfer shares(or debentures).

▪ This is done to identify cut-off date for determining which members (or debenture-
holders) will receive a notice of a meeting or dividend (or interest) etc.

▪ Company may, by giving at least 7 days notice, close register of members or any part of it
▪ It can be closed for any days not exceeding in the whole 30 days in each year
▪ SECP may, on application of company extend the 30 days’ period for a further 15 days.
▪ For listed company, notice for closure, must be given in English and Urdu languages at least
in 1 issue each of a daily newspaper of respective language having wide circulation.
▪ Any contravention or default in above shall be an offence liable to a penalty of level 2

Question 4

Final dividend

Answer 4

▪ Proposed by directors and approved by members in AGM
▪ Members may reduce, accept or reject this proposed dividend
(Cannot resolve to increase the amount proposed by directors)
▪ Paid within 10 working days of declaration
(Working days mean the days in which banks are open)
▪ A company may appoint a paying agent for distribution of dividend payable in cash.

Question 5

Paying agent

Answer 5

Paying agent” means a bank or any entity including a share registrar and a central depository
appointed by a company and having relevant approval of SBP for making payment of cash
dividend directly into the designated bank account of entitled shareholder.
Banks may not be required to appoint a paying agent and may itself assume its functions and responsibility

Question 6

Interim dividend

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

PAYMENT OF DIVIDENDS

Answer 7

▪ In listed companies, dividend in cash shall only be paid electronically (in bank account
designated by shareholders)
▪ For other companies, shareholder shall be given an option to choose form following (at the
time of becoming a shareholders)
- Cross Cheque
- Dividend warrant (and entitlement to receive dividend; much similar to cheque); or
- Electronic mode
▪ Shareholder can change the option at any time during year through a written request with
all requisite details to the company.

Question 8

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

Answer 8

▪ Any one or both of the following penalties:
- Chief executive may be fined for an amount up to Rs. 5 Million
- Also imprisonment for a term which may extend to 2 years.
▪ Ineligible to become a director or Chief Executive of any company for next 5 years.

Question 9

Circumstances in which delay in payment shall not be an offense

Answer 9

In following cases, company may withhold dividend after obtaining prior approval of SECP
within 45 days of declaration of dividend
▪ If dividend cannot be paid due to operation of any law,
▪ If shareholder has given instructions regarding payment of dividend and such instructions
cannot be followed
▪ There is a dispute on regarding the right to receive dividend
▪ If 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.