In company law, dividend is not “a gift”; it is a distribution of profits to shareholders. Because shareholders’ money is involved, the law expects proper accounts, creation/maintenance of reserves, and an independent audit so that dividend is declared only from lawful profits and the financial position is fairly reported.
This topic often appears as short notes, differences (final vs interim dividend), and 5-mark “workflow + table” answers.
You should be able to:
Dividend is the portion of a company’s distributable profits that is distributed to shareholders as a return on their investment (concept). It is usually paid in cash, and it is declared through a formal decision of the company.
Key exam keywords: profits, distributable, declaration, shareholder return.
Common “conceptual” conditions you can safely write without quoting section numbers:
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Final vs interim dividend:
Hence, final dividend is yearly; interim dividend is between two AGMs.
Conceptual conditions (any three):
These ensure lawful and fair distribution.
Corporate law (also known as business law or enterprise law or sometimes company law) is the body of law governing the rights, relations, and conduct of persons, companies, organizations and businesses. It thus encompasses the formation, funding, governance, and death of a corporation.
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In company law, dividend is not “a gift”; it is a distribution of profits to shareholders. Because shareholders’ money is involved, the law expects proper accounts, creation/maintenance of reserves, and an independent audit so that dividend is declared only from lawful profits and the financial position is fairly reported.
This topic often appears as short notes, differences (final vs interim dividend), and 5-mark “workflow + table” answers.
You should be able to:
Dividend is the portion of a company’s distributable profits that is distributed to shareholders as a return on their investment (concept). It is usually paid in cash, and it is declared through a formal decision of the company.
Key exam keywords: profits, distributable, declaration, shareholder return.
Common “conceptual” conditions you can safely write without quoting section numbers:
Profits determined from accounts → Board considers distributable profits → Board recommends/declares (interim) → Shareholders approve final dividend (concept) → Dividend recorded/paid → Proper entries and disclosures in accounts
Exam tip: write this flow as a neat one-line flowchart and add 3–4 bullet points.
Reserves are portions of profits retained in the business instead of being distributed as dividends.
Why reserves are created:
Company accounts are the formal records and statements showing financial performance and position.
Common statements (names may vary by syllabus):
Why accounts matter in company law:
Audit is needed to protect stakeholders by ensuring accounts are:
Audit is an independent examination of the books of accounts and financial statements to express an opinion on whether they present a true and fair view (concept).
Features:
Appointment/engagement → Audit planning → Internal control review → Evidence collection (tests/vouching) → Verification → Audit report → Follow-up / compliance actions (concept)
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Profits from accounts → Board considers distributable profit → Board recommends/declares (interim) → Shareholders approve final dividend (concept) → Dividend recorded and paid → Disclosures in accounts
A structured workflow ensures lawful and transparent profit distribution to shareholders.