Pg 39 Flashcards
What are non-cumulative preferred shares?
These avoid a big accumulation of dividend arrearages. They are often used in reorganizations when it’s necessary to limit the dividend right and the investors must only take what the enterprise can carry. The shares cannot be listed on the New York Stock Exchange.
What are the three groups of non-cumulative preferred shares?
– discretionary dividends
– cumulative if earned
– dividend credit rule
What is a discretionary dividend with regard to non-cumulative preferred shares?
Even if there are net profits, the shareholders’ right to the dividends depends on the judgement and discretion of the directors. If the directors withhold the dividend for that year, and they didn’t abuse their discretion to do so, the right to dividends disappears. Unless the withholding is oppressive, fraudulent, or unfairly discriminatory, no wrong has been done.
What is involved in cumulative if earned as a subgroup of non-cumulative preferred shares?
This is a mandatory dividend that is provided for in the articles of incorporation saying that all back dividends if earned must be paid before the common stock dividends
What is the dividend credit rule?
If non-cumulative preferred stock hasn’t been allotted the full dividends that it is entitled to in any term in the corporation or that year earned more than the dividends paid to the shareholders, the amount owed is credited to preferred shareholders and they get priority before dividends get paid to common stockholders.
When the corporation’s assets are distributed to shareholders as part of dissolution and winding up, what rights do the holders of preferred shares have?
The same rights to share proportionally in net assets as common shareholders unless there’s a contractual preference.
Do you preferred shareholders have voting rights?
Rarely. Voting rights are usually only given when state statutes require approval of preferred shareholders for things like amendments to the articles of incorporation that will change preferred shares.
What is the deal with redemption when it comes to preferred shares?
Corporations often reserve an option to redeem preferred shares at a certain price for future financing
What is a dividend?
A direct or indirect transfer of money or other property by a corporation to its shareholders
Where might you find restrictions for the ability of a corporation to make distributions?
- articles of incorporation – contractual restrictions – fraudulent conveyance laws – federal bankruptcy laws – state laws about director fiduciary duties
When a corporation pays dividends, what is it essentially giving to its shareholders?
Some of its assets
Do dividends have to be cash?
No, they can be other property
Is it possible to give dividends that are actually re-purchases of shares from the corporation?
No, a corporation cannot give its own shares as dividends. I.e.: cannot sell 100 shares to a shareholder for $50 a share as a distribution
Who authorizes corporate dividends?
The board through a quorum of majority directors with the majority of present directors voting for it
Is it common for courts to order a company to pay dividends?
No. The rule is that directors cannot withhold dividends in bad faith.
