Board of directors of Princeton Ltd. in the absence of adequate profits in the financial year 2014-15, wants to recommend dividend out of company's reserves. Advise the Board about the conditions to be complied with and

In accordance with Rule 3 of the Companies (Declaration and Payment of Dividend) Rules 2014, declaration of dividend out of reserves is subject to the following conditions to be fulfilled: The rate of dividend shall not exceed the average of the rates at which dividend was declared by the company in the 3 years immediately preceding that year. However, the sub-rule shall not apply to a company, which has not declared any dividend in each of the 3 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 utilized 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 the company's paid-up share capital as appearing in the latest audited financial statement. 4th proviso to section 123(1) provides that no company shall declare dividend unless carried over previous losses and depreciation not provided in previous year are set off against profit of the company of the current year. Procedure Give notice to all the directors of the company for holding a Board meeting. In the meeting take decision to declare dividend out of company's reserves because of inadequacy or absence of profits and also fix the date, time and place of the AGM. Authorize the Company Secretary or any competent person if the company does not have a company secretary to issue the notice of the AGM on behalf of the Board of directors of the company to all the members, directors and auditors of the company and other persons entitled to receive the same. Ensure that the Companies (Declaration & Payment of Dividend) Rules 2014 are complied with. While calculating the profits of the previous years, take only the net profit after tax. Ensure that while computing the amount of profits, the amount transferred from the Development Rebate Reserve is included and all items of capital reserves including reserves created by revaluation of assets are excluded. In case of listed companies, inform the Stock Exchange about decision to recommend declaration of dividend out of Reserves. Issue notices in writing at least 21 days before the date of the AGM and hold three meeting and pass resolution. Open a separate bank account for making dividend payment and credit the said bank account with the total amount of dividend payable within 5 days of declaration of dividend. Issue dividend warrants or transfer through electronic mode the amount of dividend to different shareholders, within 30 days from the date of declaration of dividend.