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Simple English definitions for legal terms
liquidation dividend
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A quick definition of liquidation dividend:
A liquidation dividend is a payment made to shareholders when a company decides to stop doing business. This payment usually comes from the company's capital and is divided among the shareholders. A dividend is a portion of a company's earnings or profits that is distributed to its shareholders, usually in the form of cash or additional shares. There are different types of dividends, such as cash dividends, stock dividends, and property dividends. A cumulative dividend grows from year to year when not paid, while a noncumulative dividend does not accrue for the benefit of a preferred shareholder if there is a passed dividend in a particular year or period.A more thorough explanation:
A liquidation dividend is a payment made to shareholders of a company when it decides to suspend all or part of its business operations and distribute its capital. This payment is usually made in cash and is proportional to the number of shares held by each shareholder.
For example, if a company decides to close down and has $1 million in capital, it may decide to distribute $500,000 to its shareholders as a liquidation dividend. If a shareholder owns 10% of the company's shares, they would receive $50,000 as their share of the dividend.
Liquidation dividends are different from regular dividends, which are payments made to shareholders from a company's profits. Regular dividends are usually paid out on a regular basis, such as quarterly or annually, while liquidation dividends are only paid out when a company is closing down.