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Seprate Bank Account for Dividends
04-22-2010, 11:56 PM,
Seprate Bank Account for Dividends
The CO 84 requies that for every dividend payment by a company, a seperate bank account should be maintained and this amount should not be used at all for company's normal operations.

my issue is that. if a well established compamy, who is giving dividend one or more every year.

whether every time, company declares the dividend, should open a new account ( or may park the amount in the bank account already opened for earlier dividend paymnets.

if the comany has to open a new account every time, then for what time it should be maintiend.

furhter, if a company is opening a new account every time of payment of new dividend then after some month months close that bank account and maintain the list of unclaimed dividned. is it complyiong with the requirements of CO 84.

Please guide me with complete refernces of all the laws involved.

04-23-2010, 05:51 AM,

The companies have to pay dividend to shareholders within 30 (previously 45) days.

For doing so bank accounts are opened and dividend amount is transferred in such accounts after net of required deductions. Simultaneously dividend warrants (a crossed banking instrument like a cross cheque) are dispatched to eligible shareholders. This all has to be done within 30 days limit to meet law's requirement as the funds equal to dividend remain no more at company's disposal.

Like cheques the validity period of dividend warrants is also 6 months after which these get expired. So technically these will never be honored by the bank if presented after 6 months. However, in such cases companies keep the accounts opened for a reasonable period and whenever a shareholder comes to revise the date of warrant, it is done with appropriate authority as it will not be honored by bank without doing so.

In the backdrop, factually there remains no meaning of keeping the bank accounts opened for longer runs, so after the expiry of a reasonable period (as per management's judgement) such accounts are closed and funds are transferred in a single current account designated for such purpose. However, company cannot use such funds. Dividend remain unpaid is treated as unpaid for ever (unless company is dissolved) and has to be honored whenever shareholder comes to claim.

There is no specific requirement to open new dividend accounts for each anouncement. If management can easily handle the record keeping and reconciliation, it can use already opened accounts.

I hope basic queries have been replied.


04-23-2010, 05:06 PM,
Really thankfull for your precious time spent for knowledge sharing.

11-25-2010, 02:26 PM,
Is it mandatory to open a current account for dividend ?
Any reference of law or the rationale behind it.
Please guide me in this concern.

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