Accrued Dividend: What It Means and Its Legal Implications

Q: Can accrued dividends be sold or transferred?

Yes, accrued dividends can be transferred along with the preferred shares, but the rights to these dividends depend on the terms of the stock issuance.

Q: How can I find out if I have accrued dividends due?

Check with the corporation&#039;s investor relations department or review the company&#039;s financial statements for declared dividends.

Definition & Meaning

An accrued dividend is an unpaid dividend on preferred stock that has accumulated over time. It represents a dividend that is considered earned but has not yet been paid to shareholders. Accrued dividends are important because they establish a preference for preferred stockholders over common stockholders, meaning that preferred stockholders have a right to receive these dividends before any dividends are paid to common stockholders.

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Legal Use & context

Accrued dividends are primarily relevant in corporate law, particularly concerning the rights of preferred stockholders. In legal practice, the concept is often discussed in the context of corporate governance and financial obligations. Understanding accrued dividends is essential for individuals involved in corporate finance, mergers and acquisitions, or shareholder disputes. Users may find helpful resources and templates on US Legal Forms to manage related legal matters effectively.

Key legal elements

Real-world examples

Here are a couple of examples of abatement:

Example 1: A corporation declares a dividend of one dollar per share on its preferred stock but does not distribute the payment. Over time, this unpaid amount accumulates as an accrued dividend. Preferred stockholders will have a right to this amount before any dividends are paid to common stockholders.

Example 2: A preferred stockholder may seek legal action to enforce their right to accrued dividends if the corporation fails to declare payment after a reasonable period. (hypothetical example)

State-by-state differences

Examples of state differences (not exhaustive):

State	Accrued Dividend Treatment
Delaware	Accrued dividends are treated as a preference in liquidation.
California	Accrued dividends must be declared to be enforceable.
New York	Accrued dividends have priority over common stock dividends.

This is not a complete list. State laws vary, and users should consult local rules for specific guidance.

Comparison with related terms

Term	Definition
Declared Dividend	A dividend that has been officially announced by the board of directors and is set for payment.
Preferred Stock	A class of stock that has a higher claim on assets and earnings than common stock, often with fixed dividends.
Common Stock	A type of security that represents ownership in a corporation and comes with voting rights, but lower priority for dividends.

Common misunderstandings

Some people believe that accrued dividends create a guaranteed payment obligation for the corporation. In reality, they only become enforceable once declared.
There is a misconception that accrued dividends create a creditor relationship. However, they are merely a preference regarding dividend payments.
Many assume that all preferred stock dividends are automatically accrued. This is not true; they must be declared by the board of directors first.

What to do if this term applies to you

If you are a preferred stockholder and believe you are owed accrued dividends, first check if the corporation has declared any dividends. If not, consider reaching out to the company for clarification. If necessary, you may want to consult with a legal professional to explore your options. Additionally, you can look into US Legal Forms for templates that can assist you in addressing this issue.

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Quick facts

Accrued dividends represent unpaid dividends on preferred stock.
They do not create a creditor relationship until declared.
Preferred stockholders have priority over common stockholders for accrued dividends.
State laws may vary in terms of treatment and enforcement.

Key takeaways

Frequently asked questions

What happens if a corporation goes bankrupt with accrued dividends?

In bankruptcy, preferred stockholders typically have a higher claim than common stockholders, which may allow them to recover accrued dividends before common stockholders receive any payment.