Question

Explain the legal requirements that must be satisfied for a company to pay dividends, under the Corporations Act 2001

Answer 1

Legal Requirements that must be satisfied for a company to pay dividends are set out in the Section 254T of Corporations Act 2001;

Provisions are explained below:

A company can pay the dividend only if it has satisfied the following three conditions:

1. Company's Assets must exceed its liabilties just before the dividend to be declared & it shall be sufficient for the payment of dividend.

2. amount of payment must be reasonable & fair for the shareholders as a whole

3. Payment of dividend shall not materially affect the company's position to pay the creditors liability. (Eg : company must not become insolvent after payment of dividend)