What is a Passed Dividend and Its Legal Implications?
Definition & Meaning
A passed dividend, also known as an omitted or unpaid dividend, refers to a dividend that a company has not declared or paid when it was due. This typically occurs when the company is facing financial difficulties and cannot distribute profits to its shareholders as expected. Companies with a history of regular dividend payments may find themselves in a position where they must omit a dividend due to cash flow constraints or other financial challenges.
Legal Use & context
The term "passed dividend" is primarily used in corporate finance and securities law. It is relevant in contexts such as shareholder rights, corporate governance, and financial reporting. When a company fails to declare a dividend, shareholders may need to understand their rights and options, which can include seeking legal recourse or negotiating with the company. Users can benefit from legal templates available through US Legal Forms to help navigate situations involving passed dividends.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A publicly traded company, XYZ Corp, has consistently paid dividends for the past decade. However, due to a sudden drop in sales, it decides to pass the dividend that was due this quarter. Shareholders may feel concerned about the company's financial health.
Example 2: ABC Inc. has a history of regular dividend payments, but after an unexpected economic downturn, it omits the dividend payment for the first half of the fiscal year. Shareholders may seek clarification on the company's future dividend policy. (hypothetical example)