We use cookies to improve security, personalize the user experience,
enhance our marketing activities (including cooperating with our marketing partners) and for other
business use.
Click "here" to read our Cookie Policy.
By clicking "Accept" you agree to the use of cookies. Read less
What is an Optional Cash Purchase and How Does It Work?
Definition & Meaning
An optional cash purchase allows investors to buy additional shares of stock through a dividend reinvestment plan. This option enables participants to use their own cash to acquire more shares than what their dividends alone would purchase. Typically, these plans impose a limit on the amount of cash that can be used for these additional purchases, ensuring that shareholders can invest more in the company while still benefiting from reinvested dividends.
Table of content
Legal Use & context
Optional cash purchases are primarily relevant in the context of securities law and corporate finance. They are often part of dividend reinvestment plans (DRIPs), which are legal agreements between a company and its shareholders. These agreements allow shareholders to reinvest dividends into additional shares, and the optional cash purchase feature adds flexibility for investors looking to increase their holdings. Users can manage their investments through legal forms provided by services like US Legal Forms, which offer templates for setting up or modifying DRIPs.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
(Hypothetical example) A shareholder of Company A receives a quarterly dividend of $100. Instead of only using this dividend to buy shares, they decide to make an optional cash purchase of $50. This allows them to acquire more shares than they would have with the dividend alone.
Comparison with related terms
Term
Definition
Dividend Reinvestment Plan (DRIP)
A plan that allows shareholders to reinvest dividends into additional shares.
Optional Cash Purchase
An additional purchase option within a DRIP that allows for cash investments beyond dividends.
Common misunderstandings
What to do if this term applies to you
If you are considering making an optional cash purchase, review your company's dividend reinvestment plan details. Ensure you understand the limits and procedures involved. For assistance, you can explore ready-to-use legal form templates from US Legal Forms to help you navigate the process. If your situation is complex, seeking advice from a financial advisor or legal professional may be beneficial.
Find the legal form that fits your case
Browse our library of 85,000+ state-specific legal templates.