A dividend is one of the most common ways that Owner-managed businesses will distribute funds to the owners. Dividends are also distributions of their accumulated after-tax dollars that companies will give their shareholders. However, there are some key points that shareholders need to be aware of when they decide that they would like to receive dividends. Here’s a quick and dirty checklist:
- Is there a class of Shares that can pay dividends? If so, what are the rights and restrictions?
- Are there Retained Earnings available to be distributed to the shareholders?
Dividends are distributions to shareholders with after-tax corporate dollars. So if your company is in a Deficit, the company may not be able to distribute dividends.
- Is there a set amount that you need to distribute as dividends for your class of shares? Or is it discretionary?
- Are you distributing Eligible or Non-eligible dividends to the shareholders?
- Do you have all of the relevant information for the shareholders? (SIN/Business Number, Address)
- Have the Directors of the company authorized the payment of the dividends, by way of a director’s resolution?
- Who is preparing the T5 Dividend Slip and Summary that needs to be filed with the Canada Revenue Agency (CRA)? If it is your accountant, please make sure that you have discussed this with them so that they are aware that these forms need to be filed.