When there is no profit in one year or the profit of a company is not enough to pay the fixed divided on preference shares, the arrears of dividend are to be carried forward and paid before a dividend is paid on the ordinary shares. This is called:
Explanation & Strategy
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When a company has no profit or inadequate profit in a year, it can still declare dividends out of accumulated profits (reserves) in accordance with the Companies (Declaration and Payment of Dividend) Rules. This ensures shareholder returns even in lean years.
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