ECON 2560 Chapter Notes - Chapter 18: Dividend Tax, Liquidating Distribution, Dividend Policy
30 Jul 2013
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Cash dividend: payment of cash by the firm to its shareholders. The firm"s records of who owns its shares can never be fully up to date but will send dividend cheque to all shareholders recorded in its books = record date. Ex-dividend date: date that determines whether a stockholder is entitled to a dividend payment; anyone holding stock before this date is entitled to a dividend. If dividend is sent to wrong person, that person is obligated to pass it on to new owner. Say a board decides to sell firms assets & distribute money as dividends. Wouldn"t leave any money to pay the firm"s debts. Bondholders will protect against this by placing limits on dividend payments. Federal law & provincial acts ,ay include provisions prohibiting firms from paying dividends under certain conditions. This is to protect firm"s creditors against excessive dividend payments. Essentially dividends should be paid from retained earnings.
