On 10/5/2024 11:36 AM, sunfish62--- via gnucash-user wrote:
How does a negative dividend work? I've never heard of one. Does the company
force shareholders to pay more money to keep their shares?
David T.
Well I suspect this is a terminology matter. Dividend probably the wrong
term. Here are the only cases I can think of "the company force
shareholders to pay more money to keep their shares?"
1) Erroneously paid out dividend being corrected (this is the closest
case). Say the company declared and paid out a dividend before the court
decided the case brought by bondholders (or some other protected
creditor) to block that. Stockholders might be forced to disgorge that
money. But it's not a negative dividend correcting that error. Note here
it is not the company forcing the stockholder to pay back but a court <<
unlikely with a large publicly held corporation, but remember most are
private and closely held >>
But cases where could be required to pay in
2) Incorporated partnership --- there might be rules about "assessments"
3) Par stock initially sold/issued below par. Mainly of historic
interest as these days new issues more likely to be "no par" or nominal
par (like $1). The initial buyer who paid below par (to the company
being formed) can be assessed to pay in up to par. Nothing like a
dividend. I'm not sure an instance of this has occurred in my lifetime.
If my memory serves, this liability stayed with the initial purchaser
(not the stock if sold on). Again it would be some action from creditors
that would cause the assessment.
When we were taught limited liability means the shareholder not liable
for debts of the corporation (could only lose what was paid for the
stock) this exception usually ignored as made moot by time and change in
business practice. But 100-200 years ago stocks were often issued with
realistic par values and at the IPO, when auctioned, might have sold
below par. In other words, while subsequent purchasers of the stock
could only lose what they paid for the stock initial purchasers could
lose up to par or what they paid, whichever greater.
Michael D Novack
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