Comment on the following: Legal, Contractual and Internal Constraints and Restrictions needs to be considered while framing dividend policy.

Legal as well as contractual requirements have to be followed while framing the dividend policy. All provisions of Companies Act, SEBI Guidelines, Capital impairment guidelines, net profit and insolvency etc. need to comply with while declaring dividend. Contractual restrictions which are imposed by certain lenders of the firm also affect the dividend policy of a firm as they impose certain conditions about the payment of dividend particularly, during the period when the firm is experiencing liquidity or profitability crisis. In addition, there may be certain internal constraints which affect the dividend policy of a firm; it includes growth prospects, financial requirements, availability of funds, earning stability and control etc.