Illegal Dividend

AAA

DEFINITION of 'Illegal Dividend'

A dividend declared by a corporation that is in violation of its charter and/or of state laws. Should such a dividend be declared, the company's board of directors can be sued by its shareholders and creditors; the company may also face prosecution.

INVESTOPEDIA EXPLAINS 'Illegal Dividend'

Many states prohibit dividend payments from the capital surplus account. Dividends are generally paid out of net income or retained earnings. Illegal dividends may significantly weaken the financial position of the company and expose its creditors to a greater degree of risk.

RELATED TERMS
  1. Ordinary Dividends

    A share of a company's profits passed on to the shareholders ...
  2. Ex-Date

    The date on or after which a security is traded without a previously ...
  3. Record Date

    The date established by an issuer of a security for the purpose ...
  4. Dividend

    1. A distribution of a portion of a company's earnings, decided ...
  5. Stock Dividend

    A dividend payment made in the form of additional shares, rather ...
  6. Sucker Yield

    When an investor has essentially risked all of his capital for ...
Related Articles
  1. The Power Of Dividend Growth
    Investing Basics

    The Power Of Dividend Growth

  2. How And Why Do Companies Pay Dividends?
    Investing Basics

    How And Why Do Companies Pay Dividends?

  3. Dividend Facts You May Not Know
    Investing Basics

    Dividend Facts You May Not Know

  4. Why Dividends Matter
    Fundamental Analysis

    Why Dividends Matter

comments powered by Disqus
Hot Definitions
  1. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  2. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  3. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  4. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  5. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  6. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
Trading Center