The declaration of a dividend generally falls under the purview of the company's board of directors. It is the directors who decide whether a dividend will be declared and who must ensure that the conditions stipulated by applicable law are met.
The fact that a company makes a profit does not automatically mean that a dividend must be declared. Shareholders generally cannot demand the payment of a dividend simply because the company is profitable. However, dividend rights attached to certain classes of shares can be either cumulative or non-cumulative. When they are cumulative, undeclared dividends can accumulate in favor of the holders of the shares concerned, according to the rights attached to that class of shares.
Before declaring a dividend, directors must take into account, in particular, the company's financial situation, the restrictions provided by law and the rights attached to the different classes of shares.
The decision to declare a dividend is generally recorded in a resolution of the board of directors. Depending on the circumstances, this resolution may specify, among other things:
It is important to distinguish between the declaration of a dividend and its payment. The declaration is the corporate decision to declare a dividend in favor of eligible shareholders, in accordance with the rights attached to their shares and the adopted terms. The payment is the actual payment of the dividend by the company to the eligible shareholders.
The resolution declaring the dividend should be kept in the minutes book with the other corporate documents of the company.
In summary , it is generally the board of directors that decides to declare a dividend. Once it has been validly declared, the company proceeds with its payment in accordance with the terms set out in the resolution.