# Dividend — Meaning and Types
## What is Dividend?
A dividend is a payment made by a company to its shareholders, usually as a distribution of profits — i.e., a portion of profits earned and allocated as payable to shareholders annually or whenever declared.
### Statutory Definition — Section 2(35)
> Section 2(35) of the Companies Act, 2013 simply states that "dividend" includes any interim dividend.
This is an inclusive definition — meaning dividend is not exhaustively defined but expressly includes interim dividend.
## Classification of Dividend
### I. Based on TIME of Declaration
#### 1. Interim Dividend
When the Board of Directors declares dividend between two annual general meetings of the company, it is called interim dividend.
- Declared during an accounting year
- Declared before finalization of accounts
- Declared by Board (not approved by shareholders)
#### 2. Final Dividend
When dividend is declared at the AGM of the company, it is called final dividend.
- Recommended by Board
- Approved by shareholders at AGM
- Declared after close of financial year
All provisions applicable on dividend apply equally to interim dividend.
### II. Based on NATURE of Shares
#### 1. Preference Shares
Further classified into:
- Cumulative Preference Shares — dividend accumulates unless paid in full
- Non-Cumulative Preference Shares — no arrears of dividend in future
#### 2. Equity Shares
Dividend dependent on dividend policy and the availability of profits after satisfying the rights of preference shareholders.
## Interim vs Final Dividend — Comparison Table
| Basis | Interim Dividend | Final Dividend |
|---|---|---|
| Definition | Declared and paid during an accounting year, before finalization of accounts | Recommended by Board, approved by shareholders at AGM, after close of FY |
| Announcement | By Board of Directors alone | Recommended by Board, approved by shareholders |
| Time of Declaration | Before preparation of financial statements | After preparation of financial statements |
| Revocation | Can be revoked with consent of all shareholders | Cannot be revoked |
| Provision in AOA | Declared only if AOA specifically permits | Does not require any specific provision in AOA |
## Why the Distinction Matters
- Final dividend, once declared, becomes a debt payable to shareholders and is irrevocable.
- Interim dividend, being a Board action and subject to AOA, retains some flexibility (revocable with consent).
- Approval mechanism is different — shareholders vs Board.
## Key Takeaway
The inclusive definition (Section 2(35)) is examiner-favourite. Always remember: AOA must permit interim dividend, and interim dividend is revocable with unanimous consent.