When it is unlawful to declare dividends because of a deficiency in the capital fund and yet the shareholders want a quick pay-out,then
A)Revenue Canada can issue "not withstanding" tax credits.
B)the corporation needs to earn enough profits to restore the deficiency.
C)shareholders can lend money to the corporation and receive interest payments in return.
D)the corporation can re-capitalize at a lower amount.
E)wages can be paid to officers instead of dividends.

Question

Quizplus · Accepted Answer

If it is unlawful to declare dividends due to a deficiency in the capital fund, then the best option would be for the corporation to earn enough profits to restore the deficiency. This will ensure that the corporation remains compliant with the law while also addressing the shareholders' desire for a quick pay-out. Option A (Revenue Canada issuing tax credits) may not be possible in all situations and option C (shareholders lending money) may not provide immediate relief. Option D (re-capitalizing at a lower amount) may not be feasible depending on the financial situation of the corporation, and option E (paying wages instead of dividends) may not be desirable if the shareholders are looking for a direct return on their investment.

When It Is Unlawful to Declare Dividends Because of a Deficiency