What must occur before a dividend can be legally paid?

A dividend must be declared by the board of directors before it can be legally paid. This declaration is a formal process in which the board reviews the company's financial status and decides whether to distribute earnings to shareholders in the form of dividends. The decision to declare a dividend typically takes into account several factors, including the company's profitability, financial health, and future investment needs.

While shareholder approval is important in terms of understanding shareholder interests and preferences, it is not a legal requirement for the payment of dividends. Similarly, recording the dividend in the company’s books or linking it to new investments does not satisfy the legal prerequisites for declaring a dividend. The board's declaration is the critical step that initiates the process of dividend payment, ensuring that all required assessments are considered before funds are distributed to shareholders.