Dividends may be paid out of the profits of a year, undistributed profits of previous years and money provided by the Central or any State government for the purpose, in pursuance of a guarantee given by the government concerned. Dividends received in India can be repatriated subject to taxation and exchange control formalities. Dividend outflow in consumer goods industries is required to be balanced by export earnings over a period of 7 years following commencement of production. This requirement is temporary and is expected to be removed after the balance of payments situation improves.
Under the Companies Act, it is necessary for a private company to have at least 2 directors and a public company to have at least 3 directors. Further, it is also necessary for every company to have a Board of Directors. The Act also contains provisions regarding appointment, removal, remuneration, powers, duties, etc. of directors.
The Articles of Association of every company contain provisions regarding remuneration to the directors. The Companies Act, however, prescribes an overall limit on total remuneration payable to all managerial personnel which is 11% of the net profits of the company during the financial year. If in any particular year there are no or inadequate profits, the company may, after obtaining approval, pay any sum by way of minimum remuneration. Provisions relating to managerial remuneration do not apply to an independent private company.
The directors have the power to perform all such acts as the company is authorised to perform. These powers however, must be exercised as a Board and not individually. The Companies Act makes it obligatory for the Board of Directors to meet at least once in every three months and at least four times every year,
Every company is required to maintain books of accounts showing all sums received and expended by the company, all sales and purchases of goods, all assets and liabilities and utilisation of material and labour. The accounts must give a true and fair view of the state of affairs of the company. Account books are required to be preserved for eight years.
The annual accounts, i.e. the balance sheet and the profit and loss account are required to be presented to the shareholders at each Annual General Meeting (AGM).
Audit of the books of accounts of companies is compulsory under the Companies Act and is known as a Statutory Audit. The Act contains provisions relating to appointment, removal, remuneration, powers, duties, etc. of a company auditor.
Under the Companies Act, the Central government may order a special audit in case it is of the opinion that the affairs of the company are not being managed in accordance with sound business principles or that the financial position is likely to endanger its solvency. Audit of cost accounts may also be ordered by the Central government for certain types of industries.
Centre for Monitoring Indian Economy, Bombay
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Last updated: May 1995.