Why do companies issue liquidating dividends

Posted by / 10-Sep-2017 16:25

Why do companies issue liquidating dividends

A share is a token of ownership, and each one represents a vote in the company concerned.

Any individual shareholder can have just one, or many.

The provision commonly reads as follows: After the payment of the Liquidation Preference to the holders of the Series A Preferred, the remaining assets shall be distributed ratably to the holders of the Common Stock and the Series A Preferred on a common equivalent basis.

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For example, Preferred Series B shares tend to be senior to Preferred Series A shares, which are senior to common shares.

The following language is common: In the event of any liquidation or winding up of the Company, the holders of the Series A Preferred shall be entitled to receive in preference to the holders of the Common Stock a per share amount equal to [x] the Original Purchase Price plus any declared but unpaid dividends (the Liquidation Preference).

Dividend is a payment made to the shareholders of a company in proportion to the number of shares held.

The usual preference is one times (1x) the original purchase price; in challenging economic times when investors are scarce, the preference may be higher.

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If you didn't own the nifty 50 stocks in the early 1970s, you underperformed and, thus, money continued to go into them.

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Unless the company plans to use this cash to start a new business venture, of course, the question is how to get the cash out. If the company pays the cash out to its shareholders as a dividend, they will suffer income tax at 25% on that dividend (assuming they are higher rate taxpayers).