There are no legal provisions regarding payment of dividend.

Ans. False


(1) Dividend is the return on share capital from the distributable profits of the company.

(2) Based on the rate of proposed dividend company is required to transfer a certain percentage to reserves as specified.

(3) E.g. Dividend of more than 20% of paid up capital entails a minimum of 10% of net profits to the transferred to reserves.

(4) Company may decide to transfer more than the stipulated rates voluntarily.

(5) Also, depreciation has to be provided for from current / previous years profits.

These provisions help the company to become financially found and solid.