Dividend involves the part of the earnings of a corporation not kept but paid by the company to its owners, depending on the equity owned by the company, instead of their contributions.
At the corporation’s general meeting, the dividend decided at the end of the financial year, and approved by the board of directors, is known as the proposed dividend.
Taking part in the interim dividend between two general meetings declared by the Board of Directors of the Corporation where the dividend is declared on the excess earnings proceeds.
Key Takeaways
- Interim dividend refers to the payment made during the financial year while the board of directors declares the proposed dividend.
- An interim dividend is paid out of profits earned till a particular date, while the proposed dividend is declared for a future period.
- Interim dividends are paid to shareholders when the company has sufficient profits, while proposed dividends are a commitment to pay a certain amount in the future.
Interim Dividend vs Proposed Dividend
The difference between an interim dividend and a proposed dividend is that the directors announce an interim dividend before determining annual profit or loss. The Company’s General Annual Meeting (AGM), i.e. at some moment between the two successive AGMs, can be interpreted as a dividend. On the other hand, Proposed dividends are the dividends announced by the corporation after reporting to the company’s Annual General Meeting (AGM) on the year’s financial statements and determination of the financial situation and profitability position.
The interim dividend is payable from income held in benefit and loss accounts or gains from the financial year in which the dividend is sought.
According to the company’s financial statements, the interim dividend rate in the previous three years did not surpass the annual dividend announced by it.
The proposed dividend shall include the dividend announced by the Management Board at the closing of the financial year at the Annual General Meeting of the Corporation.
A statement of dividends, transacted at the corporation’s general meeting, is deemed an ordinary enterprise. The company shall pass the share of the earnings to the company’s reserve before declaring the dividend.
Comparison Table
| Parameter of comparison | Interim Dividend | Proposed Dividend |
|---|---|---|
| Meaning | The interim dividend shall be announced and paid in the middle of an accounting year, i.e. before the year’s accounts are completed. | The proposed dividend shall include the Management Board’s dividend at the closing of the financial year at the Annual General Meeting of the Corporation. |
| Announcement | Advisory Board announced by the Firm. | Recommended in the meeting of the Board and announced by the members of the AGM |
| Declaration Time | Until financial statements are prepared. | After the financial statements have been prepared. |
| Revocation | With the agreement of all the owners, it can be revoked. | It can’t be withdrawn. |
| Dividend Rate | Less | Comparatively higher |
| Articles of Association | It is proclaimed only if the articles authorize the declaration explicitly. | No particular provisions in the papers are needed. |
What is Interim Dividend?
A dividend that the directors announce before determining annual profit or loss and the Company’s General Annual Meeting (AGM), i.e. at some moment between the two successive AGMs, can be interpreted as an interim dividend.
The board of directors announces it, but the owners are open to consent.
The interim dividend is payable from income held in benefit and loss accounts or gains from the financial year in which the dividend is sought.
According to the company’s financial statements, the interim dividend rate does not surpass the annual dividend announced by it in the previous three years.
After the dividend has been declared, the corporation’s proposed dividend balance shall be deposited into a different bank account within five days of the declaration date.
What is a Proposed dividend?
Proposed dividends are the dividends announced by the corporation after reporting to the company’s Annual General Meeting (AGM) on the year’s financial statements and determination of the financial situation and profitability position.
If the proposed dividend has been declared, the corporation is enforceable.
A statement of dividends, transacted at the corporation’s general meeting, is deemed an ordinary enterprise. The Company shall pass the share of the earnings to the Company’s reserve before declaring the dividend.
The organization will then selectively determine how much to allocate to savings.
Suppose there is no profit, surplus in the fiscal year, or undistributed earnings to report as a dividend. In that case, the dividend is declared out of savings, as per the rules provided by the government, but it should be out of free reserves only.
Main Differences Between Interim Dividend and Proposed Dividend
- The dividend declared and paid before the close of the accounting year is known as the temporary dividend in the middle of the accounting year. On the other hand, after the financial year has ended, dividends declared by the Executive Board are regarded as a proposed dividend at the General Assembly of the Corporation.
- In each financial year and during the time – from the end of the financial year to the meeting of the AGM – the dividend is announced by the Boards of Directors. The proposed dividend, in exchange, shall be demanded by the board of directors, declared by the AGM members, and voted on and accepted upon benefit assurance.
- Before the close of the company’s books, the interim dividend shall be announced. On the other hand, following the preparation of the corporation’s financial statements, a proposed dividend is announced.
- With the approval of all owners, the temporary dividend will be revoked, while the dividend planned cannot be revoked until it is announced.
- The interim dividend rate is always lower than the dividend rate proposed.
- Only if the Terms of Incorporation of the organization expressly mean the same will the interim dividend be declared. In the case of the proposed dividend, though, there is no such condition.
- https://www.emerald.com/insight/content/doi/10.1108/10867370810918128/full/html
- https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1468-036X.1996.tb00027.x
Last Updated : 13 July, 2023
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
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