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Simple English definitions for legal terms
stock dividend
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A quick definition of stock dividend:
A stock dividend is when a company gives its shareholders or employees more stocks instead of money. For example, if someone has 100 shares and the company issues a 3% stock dividend, they would receive three more shares. This can be a good way for companies to compensate their shareholders without spending cash. Shareholders may like stock dividends because they can receive capital gains tax treatment. However, companies must follow rules and get approval from shareholders before issuing stock dividends.
A more thorough explanation:
A stock dividend is a type of dividend that companies give to their shareholders or employees in the form of stocks instead of cash. This means that instead of receiving money, shareholders receive additional shares of the company's stock.
For example, if a company issues a stock dividend of 3%, a shareholder who owns 100 shares would receive three additional shares.
Stock dividends can be attractive to companies because they do not require them to spend cash. Shareholders may also prefer stock dividends because they can receive capital gains tax treatment, unlike cash dividends.
However, companies must follow the guidelines of their corporate charter when issuing stock dividends. Shareholders may also need to approve the issuance of stock dividends, especially if the dividend may have a significant dilution effect on the other stocks.
Overall, stock dividends are a way for companies to compensate their shareholders or employees while also retaining their cash reserves.