What is the liquidation dividend?

liquidation dividend is a type of dividend payment made to shareholders. Unlike other types of dividends, payment is generated by using assets other than income obtained from earnings. In some cases, assets can be sold and cash generated from transactions used to issue payments to shareholders. This means to provide dividend payments to shareholders rarely, except for a situation where an enterprise is being prepared for closure or liquidation, or a temporary problem with cash flow has developed.

Since the liquidation dividend is not paid out of earnings generated by the company during a particular period, the transaction is considered to be a return of capital rather than a return on profits. This creates a situation where the issuer of dividend payments does not have to pay taxes on the total amount of dividends paid from capital, because these payments were financed by assets that were probably taxed earlier. Decision to cover dividate payments from existing capital assets ratherBefore earnings are not only left at the discretion of the company. Many tax agencies have specific regulations that require companies documented that the flow of earnings is not enough to manage current dividend payments as a result of shareholders to claim that payments are exempt.

In compensation of shareholders liquidation dividends is somewhat rare, there are situations where this strategy is the worst procedure. In some cases, capital assets may need to be used to carry out dividend payments caused by what is called the waste of assets. This is more common in energy companies that provide coal or different types of oil products. Another situation where liquidation dividend can be issued is when the company itself is in the liquidation process. For example, if the owner of the business is away and the heirs decide to liquidate the company rather than continuing to operate or sell competitionEnt, this type of payment method can be issued on a certain type for evaluation.

In general, the issue of liquidation dividends is a sign that the company is in some financial difficulties. Although there are situations where this measure is necessary due to short -term interruption of cash flows, strategies more often indicate a financial problem that may or may not be easily resolved. For this reason, the company tends to consider all other options to meet their obligations to shareholders before resorting to the issue of liquidation dividends.