# Types of Dividend — Interim & Final
## 1. Interim Dividend [Sec 123(3)]
Declared and paid before the close of the financial year and before the AGM, by the Board of Directors.
### Key Features
| Feature | Details |
|---|---|
| Who declares | Board of Directors (no need to wait for AGM) |
| When | Any time between closure of FY and the AGM |
| Sources | (i) Surplus in P&L A/c, (ii) Profits of current FY, (iii) Profits up to the quarter immediately preceding declaration |
| Ratification | Must be ratified by members at the ensuing AGM |
| Loss scenario | If company has incurred a loss in the current FY up to the end of the quarter immediately preceding declaration, the interim dividend rate cannot exceed the average dividend rate of the immediately preceding 3 FYs |
| Separate bank a/c | Amount must be deposited in a separate bank account within 5 days of declaration |
| Other provisions | All provisions relating to final dividend apply mutatis mutandis to interim dividend |
## 2. Final Dividend
Declared at the AGM after the close of the financial year.
### Key Features
- The Board recommends a rate; members approve at AGM.
- Members cannot increase the recommended rate, but may reduce it or approve as is.
## 3. Side-by-Side Comparison
| Basis | Interim Dividend | Final Dividend |
|---|---|---|
| Definition | Declared and paid during an accounting year, before finalisation of accounts | Recommended by Board, approved by members at AGM, after close of FY |
| Announcement | Announced by Board of Directors | 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 once declared at AGM |
| Provision in AOA | Articles must specifically permit declaration | No specific provision in articles required |
## Why Two Categories?
- Interim dividend lets companies share profits quickly when business is doing well mid-year, without waiting 9-12 months for the AGM.
- Final dividend is the safer, formal mechanism that uses fully audited annual accounts and member approval.
## Key Takeaway
When there's a current-year loss up to the previous quarter, the safety cap of 3-year average rate kicks in for interim dividends — to prevent the Board from paying out cash the company may not actually earn for the full year.