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Corporate and Economic Laws · Dividends

Section 51: Dividend in Proportion to Paid-up Amount

Updated 11 October 2026 · Fact-checked

Section 51 of the Companies Act, 2013 says a company may, if its articles authorise it, pay dividends in proportion to the amount paid up on each share. To solve a question, check the articles, find the paid-up amount on each share, apply the dividend rate to that amount, and add up the total.

Understand Payment of Dividend in Proportion to Paid-up Amount (Section 51)

A share has a face value, but shareholders may not have paid all of it. The unpaid part is called a call in arrears when a call has been made and not paid. Money paid before it is called is called calls in advance.

Section 51 deals with how dividend is shared among such shares. It says a company may, if so authorised by its articles, pay dividends in proportion to the amount paid up on each share. So the power is permissive, not compulsory. It depends on the articles.

The idea is fair. A holder who has paid ₹5 on a ₹10 share has put in half the money. Under this method the holder gets dividend on ₹5, not on ₹10. A holder who has paid ₹10 gets dividend on ₹10.

The section also answers the common question on calls in advance. The section speaks only of the amount paid up. It does not itself say that money paid in advance of calls counts for dividend. Whether advance money earns dividend, and from when, is decided by the articles. Many articles say that money paid in advance of a call does not earn dividend. Always read the articles given in the question.

The usual exam method is simple. Take the paid-up amount per share, multiply by the rate of dividend, and multiply by the number of shares. If shares were paid up at different dates and the articles say so, dividend may be worked for the part of the year each amount was paid up.

Key rules to remember

Rule of Section 51
Dividend per share = Rate of dividend × Amount paid up per share
Applies only if the articles authorise dividend in proportion to paid-up amount. The section says a company 'may' do so.
Total dividend on a class of shares
Total dividend = Number of shares × Paid-up amount per share × Dividend rate
Use the paid-up amount, not the face value, for partly paid shares.
Time-weighted dividend (if articles provide)
Dividend = Paid-up amount × Rate × (Months paid up ÷ 12)
Use only when the question or articles say dividend runs from the date of payment.
Advance money
Calls in advance earn dividend only if the articles say so
Section 51 speaks of the amount paid up. Treatment of advance money depends on the articles.

How to solve Payment of Dividend in Proportion to Paid-up Amount (Section 51) questions

Use this method for any question on dividend on partly paid shares.

  1. 1Read the articles clause in the question. Check that they authorise dividend in proportion to the amount paid up.
  2. 2List each group of shares with its face value, number of shares and paid-up amount.
  3. 3Separate calls in arrears (called but unpaid) from calls in advance (paid before being called).
  4. 4Decide how advance money is treated, as the articles direct. If the question is silent, say so and state your assumption.
  5. 5Apply the dividend rate to the paid-up amount of each group. Use a time factor only if the question gives payment dates and the articles allow it.
  6. 6Add the group totals to get the total dividend.
  7. 7Write a short conclusion that cites Section 51 and states the condition: the articles must authorise it.

Quickest way: Paid-up base method

When to use it: Use when the exam gives share groups with different paid-up amounts and asks for total dividend.

  1. Find paid-up value per share for each group.
  2. Multiply by the number of shares to get the paid-up capital of each group.
  3. Add the groups to get the total paid-up capital that earns dividend.
  4. Multiply by the rate. Adjust for advance money only as the articles say.
  5. Write one line citing Section 51 and the articles.

Common mistakes in Payment of Dividend in Proportion to Paid-up Amount (Section 51)

  • Applying the dividend rate to face value of partly paid shares.

    Students are used to fully paid shares, where face value and paid-up value are equal.

    Fix: Always take the paid-up amount per share as the base when the articles follow Section 51.

  • Saying Section 51 compels every company to pay dividend by paid-up amount.

    The word 'may' is missed.

    Fix: State that the company may do so, and only if authorised by its articles.

  • Giving dividend on calls in advance without checking the articles.

    Students assume that all money received from members earns dividend.

    Fix: Section 51 refers to the paid-up amount. Treat advance money as the articles direct, and state your assumption if the question is silent.

  • Counting calls in arrears as paid up.

    The call has been made, so students treat it as received.

    Fix: Only the amount actually paid is paid up. Unpaid calls are not included.

  • Confusing Section 51 with the procedure for declaring and paying dividend.

    Both are in the dividend chapter.

    Fix: Section 51 only deals with the basis of proportion. Declaration and payment are covered by Section 123, and unpaid dividend by Section 124.

Worked examples

Example 1

The articles of Kaveri Industries Ltd authorise payment of dividend in proportion to the amount paid up on each share. It has 1,00,000 equity shares of ₹10 each, of which 60,000 shares are fully paid and 40,000 shares are ₹6 paid up. The company declares a dividend of 10%. Compute the total dividend.

Show the solution
  1. The articles authorise dividend by paid-up amount, so Section 51 can be applied.
  2. Fully paid shares: 60,000 × ₹10 = ₹6,00,000 paid-up capital.
  3. Partly paid shares: 40,000 × ₹6 = ₹2,40,000 paid-up capital.
  4. Total paid-up capital = ₹6,00,000 + ₹2,40,000 = ₹8,40,000.
  5. Dividend at 10% = ₹8,40,000 × 10% = ₹84,000.
  6. Check by group: ₹60,000 on fully paid shares + ₹24,000 on partly paid shares = ₹84,000.

Answer: Total dividend is ₹84,000, being ₹60,000 on the fully paid shares and ₹24,000 on the partly paid shares.

Example 2

Narmada Pharma Ltd has 50,000 equity shares of ₹100 each, ₹70 called up and paid. A shareholder holding 1,000 shares has paid ₹10 per share in advance of a call not yet made. The articles allow dividend in proportion to the amount paid up but say that money paid in advance of calls does not earn dividend. The company declares 8% dividend. Compute the dividend to this shareholder and advise on the effect of the advance money.

Show the solution
  1. The articles follow Section 51, so dividend is based on the paid-up amount.
  2. Paid-up amount per share that earns dividend = ₹70. The ₹10 advance is excluded as the articles say.
  3. Paid-up base for this shareholder = 1,000 × ₹70 = ₹70,000.
  4. Dividend at 8% = ₹70,000 × 8% = ₹5,600.
  5. Had the articles allowed advance money to earn dividend, the base would be 1,000 × ₹80 = ₹80,000 and dividend ₹6,400. This is not the case here.

Answer: The shareholder gets ₹5,600. The ₹10 per share advance earns no dividend because the articles exclude it. Section 51 itself refers only to the paid-up amount, so advance money is dealt with as the articles direct.

Exam tips

  • Begin every answer by stating the condition: the company may pay in proportion to paid-up amount only if the articles authorise it.
  • Show the paid-up base for each share group in a small working. Marks are given for the base, not just the final figure.
  • If the question is silent on calls in advance, state your assumption clearly and give the answer on that basis.
  • Do not quote section numbers beyond what you are sure of. Cite Section 51 for the proportion rule and Section 123 for declaration and payment.
  • In MCQs, watch the word 'may'. Options saying 'must' or 'shall' are usually wrong.

Practice questions from Dividends

Payment of Dividend in Proportion to Paid-up Amount (Section 51): frequently asked questions

What does Section 51 of the Companies Act, 2013 say?

It says a company may, if so authorised by its articles, pay dividends in proportion to the amount paid up on each share. The power depends on the articles.

Is it compulsory to pay dividend on the paid-up amount?

No. The section uses the word 'may', and it applies only if the articles authorise it. The articles can provide a different basis.

Can a company pay dividend on calls in advance?

Section 51 speaks only of the amount paid up and does not itself deal with advance money. Whether calls in advance earn dividend depends on the articles. Many articles say they do not.

How is dividend on partly paid shares calculated?

Multiply the paid-up amount per share by the dividend rate and by the number of shares. Add the amounts for all share groups to get the total.