This Interim dividend is declared between two annual general meetings. As per regulation 86 of Table A, the Board may from time to time pay to the shareholders such interim dividends as appear to it to be justified keeping in view the profits of the company. The articles of association may allow for the payment of such a dividend if Table A has not been adopted by a company. The payment of such a dividend is declared by the directors, so there is no necessity of calling a meeting of the shareholders to sanction the payment of such a dividend as it is in case of a final dividend. But the directors are to be very careful while declaring interim dividend.
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They are to keep in mind the future prospects of the profits and are to declare interim dividend only if they feel that profits will be maintained for the remaining part of the year. If it is discovered at the end of the year that the profit disclosed by the Profit and Loss Account is not sufficient to cover the amount paid as interim dividend, the directors will then have to make good the amount of such dividend as dividends can be paid legally out of profits and not out of capital.