More than 20 loss making firms paid dividends in FY24 - MMJC

Despite incurring losses in FY24, several firms have proposed paying dividends, pending shareholder approval. Interestingly, promoters hold stakes ranging from 20% to 75% in these firms, making them significant beneficiaries of the dividend payouts in certain cases.

Under the Companies Act, there are no specific restrictions on dividend payments in the presence of standalone profits. However, for the top 1000 listed companies, dividend distribution is governed by a Dividend Distribution Policy.

Apart from the legal framework, companies (both profit and loss-making) need to consider aspects such as expansion plans, market price, and geopolitical situations leading to escalations in the cost of managing the business, before recommending dividends, say market participants.

Companies also have the flexibility to pay dividends using profits from previous years without any limit on the amount.

However, when dividends are paid from general reserves, there are specific restrictions on both the amount and the rate of dividends. In either scenario, provisions for depreciation must be accounted for, and any losses incurred in the current or previous years must be adjusted before dividends can be distributed.

Also, approval from shareholders is mandatory if dividends are declared from general reserves. In contrast, dividends funded from profits of previous years can be declared as interim dividends by the board without needing prior shareholder approval, said Joshi.

Views shared by Mr. Makarand Joshi – Partner of MMJC!

The link to the article is

https://www.moneycontrol.com/news/business/earnings/more-than-20-loss-making-firms-paid-dividends-in-fy24-12755530.html