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A company cannot declare dividends merely because it has earned accounting profits. Dividend declaration is subject to legal provisions, availability of distributable profits, liquidity, and protection of creditors and shareholders. Under the Companies Act, 2013, dividends can generally be declared only from legally available profits and after satisfying prescribed financial conditions. The first condition is the existence of sufficient distributable profits. Under Section 123 of the Companies Act, 2013, dividend may be declared out of profits of the current financial year after providing for depreciation, out of undistributed profits of previous financial years after providing for depreciation, or out of a combination of both. Therefore, a company cannot legally distribute capital or unrealised accounting gains as ordinary dividends. Depreciation must be properly provided before profits are considered available for distribution. A company also cannot declare dividends when ____ _____ _____ ____ _____ _________ ____ __________ __________ __________ ________.
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