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What is a Scrip Dividend? A Comprehensive Legal Overview
Definition & Meaning
A scrip dividend is a type of dividend that is issued in the form of certificates. These certificates entitle the holder to receive shares of capital stock from the corporation in the future. Unlike traditional cash dividends, scrip dividends are often issued when a company has limited cash flow but sufficient retained earnings. This means that while the company may not be able to distribute cash to shareholders, it can offer them the promise of future stock ownership.
Table of content
Legal Use & context
Scrip dividends are primarily used in corporate finance and securities law. They provide companies with a way to reward shareholders without depleting cash reserves. In legal practice, scrip dividends may involve various forms and procedures, particularly in corporate governance, where shareholders must be informed about their rights and options. Users can manage related documentation through platforms like US Legal Forms, which offer templates for corporate resolutions and shareholder agreements.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A corporation facing cash flow challenges may choose to issue scrip dividends to its shareholders instead of cash dividends. Shareholders receive certificates that promise future stock ownership.
Example 2: A company with strong retained earnings but experiencing temporary liquidity issues may offer scrip dividends to maintain shareholder satisfaction without immediate cash outflow. (hypothetical example)
Comparison with related terms
Term
Definition
Key Differences
Scrip Dividend
A dividend paid in certificates for future stock.
Does not provide immediate cash or voting rights.
Cash Dividend
A direct payment of cash to shareholders.
Provides immediate cash benefits and voting rights.
Stock Dividend
A dividend paid in additional shares of stock.
Increases the number of shares owned but does not provide cash.
Common misunderstandings
What to do if this term applies to you
If you receive a scrip dividend, review the certificate carefully to understand your rights and the terms of the dividend. You may want to consult with a financial advisor or legal professional to explore your options. Additionally, consider using US Legal Forms to access templates for any necessary documentation related to your shares or dividends.
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