Clarification on Dividend Rules: Newly Incorporated Companies Must Follow Rule 2, Restricting Reserve Transfers to 10% of Profits.

The circular addresses queries regarding the application of the Companies (Transfer of Profits to Reserves) Rules, 1975, and the Companies (Declaration of Dividend out of Reserves) Rules, 1975. It clarifies that for newly incorporated companies, which have not declared dividends in the three years preceding the financial year, rule 3 does not apply. Instead, these companies must adhere to rule 2, which restricts them from transferring more than 10 percent of their profits to reserves. This guidance aims to ensure compliance with the specified regulations for profit allocation and dividend declaration.

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