When a company wishes to issue dividends to its shareholders, a few steps need to be taken to approve and record the declaration(s) properly. This article briefly explains what a lawyer will typically want to know when it’s time to declare dividends.
When the decision to declare dividends is made, either someone from the corporation or the corporation’s accountant should contact the corporation’s lawyer with information regarding the dividends. The lawyer will then prepare a directors’ resolution with the information received and send it out to all of the directors of the corporation for approval and signature.
If they are unfamiliar with your company, the lawyer may first want to review the corporation’s Articles, By-laws, Securities Register, and Shareholder Agreements to see if there are any dividend restrictions that they should be aware of before drafting the resolutions.
The information that a lawyer needs to record the issuance of dividends thoroughly is:
- The date of declaration;
- The class, or classes, of shares that the dividends are declared on;
- The total dollar amount of the dividend;
- The dollar amount per share;
- The payment method;
- The payment date;
- Whether they are eligible or non-eligible dividends;
- Whether they are from the capital dividends account.
Once all of the directors sign this resolution, it should be kept in the Corporation’s Minute Book. This is often done at the same time as other Annual Maintenance resolutions, but it can be done at other times throughout the year as well.
It is very important that the Corporation’s Minute Book contains resolutions authorizing all dividends paid. Without them, there can be serious consequences, including charges by the CRA.
The corporate support platform by Tobuso can help you organize your records. Additionally, if you need assistance from a lawyer, you can contact your corporation’s lawyer or our friends at directLEGAL.ca.
