What is a dividend?

Regarding a business corporation, whether of Quebec or federal jurisdiction, dividends are realized profits, that the shareholder receives in relation to shares held in the share capital of the latter.

A dividend, it is someway a "reward" received by shareholders of a business corporation in return for their investments in the latter. The more the business corporation will become gainful and make profits, the more the shareholders will expect to receive dividends and the more the business corporation will financially be capable of paying them a dividend. The business corporation can then declare and pay a dividend to certain shareholders or all its shareholders, according to the rights attached to each class of shares issued and outstanding.

To find out if you are entitled to receive dividends as shareholder of a specific class of shares, you will have to consult the share capital structure of the business corporation appearing in its articles. Indeed, it is not all classes of shares of a business corporation that give the right to receive a dividend. Priorities of rank are also granted to certain classes of shares.

However, it is important to mention that the board of directors of the business corporation has sole discretion to declare a dividend and that it can only do so if the business corporation has the legal capacity thereof and that, according to the criteria established by corporate laws. Only a unanimous shareholder agreement signed by all shareholders could remove this power from the directors in order to grant it to the shareholders.

Before making such a declaration of dividends, the directors will have to verify whether the articles of the business corporation allow the declaration and payment of dividends on the class of shares for which they wish to do so.