Question

identify the 3 things necessary for a corporation's board of directors to declare a cash dividend.

Answer 1

1. Review corporate documents for any restrictions. The board of directors (BOD) should check that the corporate governance documents does not prohibit distribution of cash dividend. BOD should also review other documents like certificate of incorporation, loan agreements, stockholder's agreements, together with the no. of options outstanding, or any other contract or provision which prohibits distributing cash dividend.

2. Verify that the dividend distribution does not affect the solvency requirements of the organisation. The BOD should make sure that distributing dividend does not affect the debt repayment when due or the organisation fails to repay it's preference sharesholders completely at the time of winding up or on due date. Solvency requirements of the organisation can be calculated by analysing the financial statement of the organisation.

3. Finally take corporate governance actions. BOD can approve the cash dividend if it satisfies all the requirements and complies with the law. BOD should analyse the sources of the dividend payment and the rate of payment. The declaration of cash dividend can be done by BOD in its general annual meeting or it may call special meeting for this purpose or can give a written consent for the purpose duly signed.