Proposed Dividends explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The dividend a board proposes after the year end is disclosed but never provided for — because at the reporting date the company had no obligation to pay it.
The proposed dividends disclosure
Division III to Schedule III requires disclosure of the amount of dividends proposed to be distributed to equity and preference shareholders for the period, and the related amount per share to be disclosed separately.
Both figures are required, and for both classes of shareholder. The aggregate tells a reader what is leaving the company; the per-share figure is what a shareholder can compare against the market price and against prior years.
Ind AS 10 Events after the Reporting Period requires that dividends in respect of the period covered by the Financial Statements, which are proposed or declared by the enterprise after the Balance Sheet date but before approval of the Financial Statements, should not be adjusted but should be disclosed in accordance with Ind AS 1 Presentation of Financial Statements.
The reasoning is that a proposed dividend creates no present obligation at the reporting date. Until it is approved by the members, the company can withdraw it; a liability that the entity can unilaterally avoid is not a liability at all.
The consequence in the accounts is worth stating plainly. Equity at the balance sheet date is presented before the proposed dividend, and retained earnings are correspondingly higher than the amount that will actually remain after distribution. A reader who wants the post-dividend position must take the disclosed figure and deduct it — which is exactly why the disclosure is mandatory rather than optional.
Arrears on irredeemable preference shares
Though the Act prohibits issue of irredeemable preference shares, Division III to Schedule III requires separate disclosure of the arrears of fixed cumulative dividends on irredeemable preference shares.
The apparent contradiction is resolved by how the word is being used: the term "irredeemable" is used in the context of compulsorily convertible preference shares, rather than in the context of perpetual preference shares which are neither convertible nor redeemable.
A compulsorily convertible preference share is not redeemable — it converts into equity rather than being repaid — and so is "irredeemable" in that sense without offending the statutory prohibition on genuinely perpetual, non-convertible preference capital.
Why cumulative arrears matter
A fixed cumulative preference dividend that has not been paid does not lapse; it accumulates and must be cleared before equity shareholders receive anything. The arrears figure therefore measures a prior claim on future distributable profits that appears nowhere else in the balance sheet — the shares themselves are carried at their subscription amount, which says nothing about unpaid dividends behind them.
Unutilised issue proceeds
Division III to Schedule III requires that where, in respect of an issue of securities made for a specific purpose, the whole or part of the amount has not been used for the specific purpose at the Balance Sheet date, then the company shall indicate by way of note how such unutilized amounts have been used or invested.
The disclosure sits alongside the dividend requirements in the same set of general instructions, and it answers a related question — money raised from investors for a stated purpose that has not yet been applied to it is money the investors have a legitimate interest in tracking.
Assembling the proposed dividends disclosures
- Amount of dividends proposed to equity shareholders, and per share.
- Amount of dividends proposed to preference shareholders, and per share, disclosed separately.
- Arrears of fixed cumulative dividends on irredeemable preference shares.
- Confirmation that dividends proposed after the reporting date are disclosed and not adjusted.
- Unutilised amounts from a specific-purpose securities issue, and how they have been used or invested.
Common mistakes
- Providing for proposed dividends declared after the balance sheet date.
- Disclosing the aggregate dividend without the per-share amount.
- Combining equity and preference dividend disclosures.
- Omitting arrears of cumulative preference dividends.