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Understanding Dividend Payment Procedures

The document discusses the procedural aspects of paying dividends to shareholders. It explains that the board of directors declares a date of record, after which shareholders listed in the company's records are entitled to the dividend. It provides an example, noting that even if a shareholder sells their stock before the payment date, they are still entitled to the dividend if they owned the stock on or before the date of record. It also discusses the ex-dividend date and rules around impairing a company's capital through dividend payments.

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Uzma Ali
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154 views5 pages

Understanding Dividend Payment Procedures

The document discusses the procedural aspects of paying dividends to shareholders. It explains that the board of directors declares a date of record, after which shareholders listed in the company's records are entitled to the dividend. It provides an example, noting that even if a shareholder sells their stock before the payment date, they are still entitled to the dividend if they owned the stock on or before the date of record. It also discusses the ex-dividend date and rules around impairing a company's capital through dividend payments.

Uploaded by

Uzma Ali
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

DIVIDENDS AND SHARE REPURCHASE: THEORY AND PRACTICE

Chapter 11

Procedural Aspects of Paying Dividends


Date of Record: When the board of directors of corporation declares a cash dividends, it specifies a date of record. At the close of business that day a list of stockholders is drawn up from the stock transfer books of the company. Stockholders on the list are entitled to the dividend. Stockholders who come on the books after the date of record are not entitled to the dividend.

Cont.

Example: board of directors of United Chemical Company met on May8, it declared a dividend of 25cents a share payable June 15 to stockholders of record on May31, Jennifer Doakes owned the stock well before May 31, so she is entitles to the dividend, even though she might sell her stock prior to the dividend actually being paid on June15. The buyer and the seller of a stock have 3 business days to settle the transaction. New stockholders are entitles to dividends only if they buy the stock 3 or more business days before the date of record.

Cont.
If the stock is bought after that time the stockholder is not entitled to the dividend. Ex dividend Date: The date itself known as the ex- dividend date. A company cannot pay a dividend if it impairs capital. Capital impairment rules vary according to state laws. But most consider impairment to occur when a dividend reduces the common stock account (at

Cont.
Once dividend is declared, stockholders become general creditors of the company until the dividend is actually paid. The declared but unpaid dividend is a current liability of the company coming out of retained earnings. Most companies that pay dividends do so on a quarterly basis, though semiannual or even annual intervals are sometimes used.

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