In simple terms, book closure in case of joint-stock companies announcing dividends signifies a cut-off date on which the company closes its books for the shareholders to be entitled for any corporate benefits such as dividends or bonus issues. Only those shareholders that are registered in the companies books on the book closure date are entitled for dividend payments.
As stocks of any company listed on the exchange are constantly being traded in the open market, it becomes difficult for the corporate to determine actual shareholders of the stock at a particular point of time. So, the company announces a book closure date beforehand for the shareholders to claim their dividend share.
Example illustrating book closure date and its effect
Suppose if a joint stock company whose X stocks are being traded in the market announces the book closure date as 31st July'2013. In this course, dividend announced for the stock would pass on to shareholders that are registered with the company on 31st July'2013 and not to shareholders who may held the stock at some later date.
Importance of Book Closure date for Investors
Investors need to pay heed to the fundamentals of the company in which they have invested for better returns. Further, awareness with regard to book closure is also very crucial from an investors stand-point as knowing that investors could defer their sale decision for a certain stock just to be entitled to the dividend payment.
In order that the dividend amount announced is credited to the account of the shareholder, the shareholders must ensure that their details such as the name and number of stocks held by them are properly registered with the company before the book closure date. As any discrepancy in this regard, could make the stockholders to forgo the dividend benefit wholly or partially.