# Dividend — Definition and Types [Section 2(35)]

## What is Dividend?

Dividend is declared as a proportion of the Nominal (Face) Value of a share — never on market value.
The Act's definition is short but loaded: "Dividend includes interim dividend."

## Two Types of Dividend

### 1. Interim Dividend

Declared by the Board alone (no shareholder approval required).
Declared:
During the financial year, OR
Post-closure of the financial year, till holding the AGM.
Can be revoked after declaration — but only with the consent of all shareholders.

### 2. Final Dividend

Recommended by the Board AND approved by shareholders at the AGM.
Shareholders cannot increase the rate recommended by the Board (they may approve or reduce).
Once declared at AGM, it becomes a liability/debt of the company → CANNOT be revoked in any case.

## Comparison Table

Feature	Interim Dividend	Final Dividend
Who declares?	Board only	Board recommends, shareholders approve at AGM
When?	During FY or before AGM	At AGM
Revocable?	Yes (with consent of all shareholders)	No — becomes debt of company
Rate ceiling by shareholders?	N/A	Cannot exceed Board's recommendation

## Key Memory Hook

"Interim = Board's call, retractable with unanimous consent. Final = shareholder-approved at AGM, becomes a debt the moment it's declared."

Worked example

### Example 1

Example: The Board of K Ltd. declares an interim dividend of 10% on 15 January. On 20 February (before the next AGM), the Board realises cash flow is tight and wants to revoke the dividend. Can it?

Answer: An interim dividend can be revoked only with the consent of all shareholders after declaration. So unless every shareholder agrees, the Board cannot revoke it unilaterally.

### Example 2

Example: At the AGM of M Ltd., the Board recommends a final dividend of 8%. A group of shareholders proposes to raise this to 12%. Is this permitted?

Answer: No. Shareholders cannot increase the rate of dividend recommended by the Board. They may approve at 8% or reduce, but not increase.

⚠️ Common exam mistakes

Calculating dividend on market value — it's always on face/nominal value.
Thinking interim dividend is irrevocable like final dividend.
Believing shareholders can raise the dividend rate above Board's recommendation.

Reference: Section 2(35) — Companies Act, 2013

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →

Definition and Types of Dividend

Worked example

⚠️ Common exam mistakes