Dividend connotes that portion of company’s profit, which is not retained in the business but distributed by the company among its shareholders, as a return on their investments, based on the shares held by them. The dividend announced by the company at the end of the financial year, recommended by the board of directors, at the company’s general meeting is known as a final dividend.
Coming to the interim dividend which is declared by the company’s board of directors between two general meetings, when it earns surplus profits, in which the dividend is declared. In this article excerpt, we are going to talk about the differences between interim dividend and final dividend.
Content: Interim Dividend Vs Final Dividend
|Basis for Comparison||Interim Dividend||Final Dividend|
|Meaning||Interim dividend is one that is declared and paid in the middle of an accounting year, i.e. before the finalization of accounts for the year.||Final dividend implies the dividend declared by the board of directors, at the company's Annual General Meeting, after the close of financial year.|
|Announcement||Recommended by Board of Directors and approved by shareholders.||Announced by Board of Directors.|
|Time of declaration||Before preparation of financial statements.||After preparation of financial statements.|
|Revocation||It can be revoked with the consent of all shareholders.||It cannot be revoked.|
|Rate of dividend||Less||Comparatively higher|
|Articles of Association||It is declared only when the articles specifically permits the declaration.||It does not require any specific provision in the articles.|
Definition of Interim Dividend
Interim Dividend can be understood as the dividend which is announced by the company’s directors before the ascertainment of annual profit or loss and the company’s annual general meeting (AGM), i.e. any time between the two consecutive AGMs. It is announced by the board of directors, but it is subject to the approval of shareholders.
Interim Dividend is paid either out of retained earnings in the profits and loss accounts or out of profits of the accounting year in which the dividend is sought to be announced.
When the company suffers loss as per financial records of the immediately preceding quarter, the rate of interim dividend should not be more than the average dividend declared by the company, in last three years. Once the dividend is declared the amount of dividend proposed by the company is required to be deposited within five days from the date of declaration in a separate bank account.
Definition of Final Dividend
Final Dividend means a dividend which the company announces after the financial statement for the fiscal year has been reported in the company’s Annual General Meeting (AGM) and the financial position and profitability position is ascertained. Once the final dividend is declared, it becomes an obligation enforceable against the company.
Declaration of the dividend is considered as an ordinary business, transacted in the company’s general meeting. Before the declaration of dividend, the company is required to transfer the part of the profit to the company’s reserve. Hence the company can freely decide the amount to be transferred to reserves.
If in case there is no profit or any profit in the fiscal year or any undistributed profits to declare as dividend, then the dividend is declared out of reserves, as per the provisions made by the government, but that should be out of free reserves only.
Key Differences Between Interim Dividend and Final Dividend
The differences between interim dividend and final dividend are elaborated here in a detailed manner:
- The dividend which is announced and paid in the middle of an accounting year, i.e. before the finalization of accounts for the year, is known as an interim dividend. On the other extreme, Dividend declared by the board of directors, at the company’s Annual General Meeting, after the completion of the financial year, is known as a final dividend.
- The board of directors recommends interim dividend but approved by the company’s shareholders. Conversely, final dividend is recommended by directors, voted on and approved at the annual general meeting, after ascertainment of profit.
- Interim Dividend is declared before the finalisation of accounts of the company. In contrast, final dividend is announced after the preparation of company’s financial statements.
- The interim dividend can be cancelled, with the consent of all shareholders, whereas once the final dividend is declared, it cannot be reversed.
- The rate of interim dividend is always less than the rate of final dividend.
- The interim dividend can be announced only when the articles of association of the company expressly signify the same. On the contrary, there is no such requirement in the case of final dividend.
Dividends are the appropriation of profit, which provides returns to the shareholders on the amount invested by them. While the interim dividend is associated with a part of the year, normally six months, final dividend belongs to the full year, i.e. the fiscal year. Final dividends are declared and paid out on an yearly basis after the earnings are known for the financial year, whereas interim dividend is paid out of surplus profits (undistributed) of the previous years.