Declared and paid dividends are one of the ways in which a corporation, whether incorporated in Quebec or at the federal level, can distribute a portion of its profits or financial resources to its shareholders. When a corporation makes a profit, it can choose to reinvest it in its operations and development or distribute a portion to its shareholders as dividends.
However, the payment of dividends is not guaranteed. A company may decide to retain its profits to finance its operations, investments, or future needs rather than distributing them to its shareholders.
Subject to any unanimous shareholder agreement transferring this power, it is generally the board of directors that decides whether to declare a dividend and determines its amount and terms. However, the board can only declare and pay a dividend if the company is legally capable of doing so, in accordance with the criteria set forth in the applicable law.
The company's articles of association determine the rights attached to the different classes of shares, particularly with regard to dividends. Not all classes of shares necessarily carry the same rights in this respect. Some may, in particular, have a priority right to dividend payment or stipulate specific terms for its calculation or payment.
Before declaring a dividend, the board of directors must therefore verify the rights attached to the different classes of shares, the articles of association of the company, any applicable unanimous shareholder agreement as well as the legal capacity of the company to make the payment.
The declaration of a dividend is generally recorded by a resolution of the board of directors, which must be kept in the company's minutes book.