Dividends are usually paid on Paid-up Capital.

Dividends are a form of distribution of profits made by a company to its shareholders. It represents the return on investment for the shareholders and is usually paid in the form of cash or additional shares of stock. However, dividends are not paid on all types of capital, but rather on a specific type known as "paid-up capital."

Understanding the Types of Capital:
To understand why dividends are paid on paid-up capital, it is important to understand the various types of capital a company can have:

1. Authorized Capital: This is the maximum amount of share capital that a company is authorized to issue. It is mentioned in the company's Articles of Association and can be increased or decreased with the approval of shareholders.

2. Issued Capital: This refers to the total number of shares that have been issued by the company to shareholders. It represents the actual amount of share capital that has been subscribed by the shareholders.

3. Called-up Capital: This is the portion of issued capital that the company has called upon from the shareholders. It represents the amount of money that the shareholders are required to pay for their shares.

4. Paid-up Capital: This is the portion of called-up capital that has been paid by the shareholders to the company. It represents the actual amount of money that the shareholders have invested in the company.

Reason for Dividends on Paid-up Capital:
The reason dividends are paid on paid-up capital is because it represents the actual amount of money that the shareholders have invested in the company. By paying dividends on paid-up capital, the company ensures that the shareholders receive a return on their investment based on the actual amount contributed.

Dividends are not paid on authorized capital because it represents the maximum amount of share capital that a company can issue. It does not reflect the actual investment made by shareholders.

Similarly, dividends are not paid on issued capital or called-up capital because they represent the number of shares issued or the amount called upon from shareholders, respectively. These types of capital do not take into account whether the shareholders have actually paid for their shares.

In Conclusion:
Dividends are paid on paid-up capital because it represents the actual amount of money that shareholders have invested in the company. By paying dividends on paid-up capital, the company ensures that shareholders receive a return on their investment based on the actual amount contributed. It is important for shareholders to understand the different types of capital and how dividends are calculated to effectively evaluate their return on investment in a company.