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Distributions to Shareholders

Net assets assets liabilities therefore surplus

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Net Assets = Assets - Liabilities Therefore, Surplus = Assets - Liabilities - Stated Capital Surplus is a “snapshot” on any given date NOTE: RMBCA does not use this concept. Cash Dividends Pro rata distribution to holders of outstanding shares, i.e., each share in same class receives same amount Within discretion of board of directors to declare (once declared, dividend = to debt of corp to shareholders) Unusual for court to intervene - requires showing of bad faith See, e.g., Dodge v. Ford Motor Corp. (Case 7-3) Stock Dividends Pro rata distribution of additional shares to holders of outstanding shares. Can be:
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As percentage (e.g. 20%) As number (e.g. 2 shares per share) Company must have sufficient shares to issue Stock Split Distinguish from stock dividend After stock split, shareholders still own same % of company No effect on Stated Capital in states with that concept - If par shares, par value divided (stock split) or multiplied (reverse stock split) Reasons: Increase marketability by decreasing price per share Reverse stock split: increase profitability per share Redemption and Reacquisition of Shares Redemption - Feature of shares is that corp. allowed to or required to redeem (buy back) e.g., on happening of particular events Usually at stated price or formula Following particular procedures RMBCA allows for redemption if specified in corp’s articles of incorporation
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