This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 261.— A loan company shows among its assets $5,000 for costs of charter, and $29,200 for organization expenses, the latter having been increased somewhat during the year. Would the directors be justified, in the face of this, in paying a dividend to the shareholders ? Their assets do not much exceed $200,000.
Answer.—The right of the directors to pay a dividend depends upon the state of the profits. A dividend cannot lawfully be paid which would impair the capital, or while the company is insolvent, but if there be profits on hand they can be used in payment of a dividend. We think there is nothing in the conditions mentioned to prevent the directors from lawfully paying a dividend; the expediency of it is another question.