Yes, under certain circumstances. A company does not necessarily have to have made a profit in its last financial year to be able to declare a dividend.
The possibility of declaring a dividend depends primarily on compliance with the financial requirements stipulated by the law under which the company is incorporated. These requirements are not exactly the same for a company incorporated in Quebec and a company incorporated under the federal regime. In both Quebec and the federal government, a dividend may be paid in cash, in kind, or in fully paid-up shares issued by the company, or in the form of options or rights to purchase such shares, subject to the applicable rules.
Company incorporated in Quebec
For a corporation incorporated under the Quebec Business Corporations Act , directors must verify the restrictions set out in that Act before declaring and paying a dividend. Specifically, except in certain cases provided for by law, a corporation may not declare or pay a dividend if there are reasonable grounds to believe that it cannot, or would be unable to, pay its liabilities as they become due.
However, certain exceptions exist, particularly with respect to dividends paid in shares or in stock options or rights to acquire shares. The law also provides that the company may deduct from dividends payable to a shareholder certain amounts owed by the shareholder.
The absence of profits during the last financial year is therefore not sufficient, in itself, to prevent the declaration of a dividend.
Federally incorporated company
For a corporation incorporated under the Canada Business Corporations Act , specific financial tests must also be met. In particular, the corporation must satisfy the requirements set out in the Act regarding its ability to pay its liabilities as they fall due and the value of its assets relative to certain liabilities and equity.
Thus, a company that has not made any profit during its last financial year could nevertheless be able to declare a dividend if the applicable legal conditions are met.
Conversely, a company's profitability does not automatically mean it can declare a dividend. Directors must verify the company's financial situation and any legal restrictions before making a decision.
When a dividend is declared, the decision should be recorded in a resolution of the board of directors and kept in the minutes book.
In summary , the existence of profits during the last fiscal year is not, in itself, the determining factor in whether a dividend can be declared. Rather, it is necessary to verify the financial conditions stipulated by the law applicable to the company, which differ depending on whether it is incorporated in Quebec or federally.