Solid Ltd., wants to declare final dividend. The company did not earn profits in last two years. Can the final dividend be declared and paid in such a situation? Explain the provisions in this regard.

Rule 3 of the Companies (Declaration and Payment of Dividend) Rules, 2014 make rules for declaration of dividend out of free reserves in the event of adequacy or absence of profits in any year, subject to the fulfilment of the following conditions, namely: The rate of dividend declared shall not exceed the average of the rates at which dividend was declared by it in the three years immediately preceding that year. However, this provision shall not apply to a company, which has not declared any dividend in each of the three preceding financial year. The total amount to be drawn from such accumulated profits shall not exceed one-tenth of the sum of its paid-up share capital and free reserves as appearing in the latest audited financial statement. The amount so drawn shall first be utilised to set off the losses incurred in the financial year in which dividend is declared before any dividend in respect of equity shares is declared. The balance of reserves after such withdrawal shall not fall below 15% of its paid up share capital as appearing in the latest audited financial statement. Accordingly, Solid Ltd may declare and pay final dividend out of the free reserve, in accordance with the above referred provisions.