Dividends -No Retained Earnings

#2 04-07-2005, 07:14 AM

"David Smith" <email[at]email.com> wrote:

- quote -

> Is here anything that prevents a public corporation (or any
> corporation fore that matter) from paying dividends from a
> deficit position?

It depends upon the state law for the corporation. A
minority of states permit what is called a "nimble
dividend", where companies can pay dividends out of current
earnings (usually current year and prior year), even if
there are no retained earnings. Delaware, for one.

http://www.pesik.net/corporations/NimbleDividend.html

--
Mark Freeland
nBeOwXs[at]pacbell.net

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#1 04-05-2005, 07:17 AM

"David Smith" <email[at]email.com> writes:

- quote -

> Is here anything that prevents a public corporation (or any
> corporation fore that matter) from paying dividends from a
> deficit position?

Some state laws may have something to say about it. But
such "dividends" will, I believe, be considered non-taxable
returns of capital under federal tax law. The recipient
will not report them or pay tax on them, but will have to
reduce his basis in the corp by the amount of the
distribution. Once basis is reduced to zero, future return
of capital distributions are taxed as long-term cap gains.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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04-02-2005, 08:15 AM

"David Smith" <email[at]email.com> wrote:

- quote -

> Is here anything that prevents a public corporation (or any
> corporation fore that matter) from paying dividends from a
> deficit position?

This really isn't a tax question. The decision to
distribute property or cash to shareholders isn't based on
tax law. The only tax law that applies is to the treatment
of the distribution.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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#-1 04-01-2005, 08:22 PM

Hello,

Is here anything that prevents a public corporation (or any
corporation fore that matter) from paying dividends from a
deficit position?

Thanks for any help...

David S
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