A record date in relation to the Dividend (which is to be paid by a Company) is a very vital date, as it is the date which lets a Company to ascertain the names of shareholders / beneficial owners entitled to receive the Dividend.
As per section 123(5) of the Companies Act, 2013 [earlier 206(1) of the Companies Act, 1956], no dividend shall be paid by a company in respect of any share therein except to the registered shareholder of such share or to his order or to his banker.
To comply the provisions of the above section, companies generally close their register of members(in accordance with the provisions of section 91), after giving not less than 7 days' prior notice by advertisement in 2 newspapers (1 english + 1 local language circulating in the district in which the registered office of the company is situated).
Dividend is paid to the shareholders whose name appears on the register of members on this ‘record date’.
Lets understand the provisions by an example:
Suppose a company is holding its Annual General Meeting on 7th May, 2015 and one of the ordinary business to be dealt at the meeting is to declare a dividend for the year ended March 31, 2015.
The Company can give a notice of closure of the Register of Members and the Share Transfer Books of the Company for a period from Tuesday, May 5, 2015 to Thursday, May 7, 2015 (both days inclusive) and fix a record date i.e. Thursday, May 7, 2015.