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A deficiency dividend is a dividend paid by a company to meet tax requirements and reduce or avoid personal-holding-company tax from a previous year. It is not intended to reward shareholders but rather to fulfil tax obligations. Dividends are a portion of a company’s earnings or profits distributed proportionally to shareholders, typically in the form of cash or additional shares. If a company did not pay enough dividends in a previous year and is subject to personal-holding-company tax, it may pay a deficiency dividend to address the tax liability.
A deficiency dividend is a payment made by a corporation to its shareholders when the company has insufficient funds to pay its debts in full.
A deficiency dividend is paid after all other debts and obligations of the corporation have been satisfied.
Shareholders of the corporation are eligible to receive a deficiency dividend.
The amount of a deficiency dividend is determined by the amount of funds remaining after all other debts and obligations of the corporation have been satisfied.
Yes, a deficiency dividend is taxable as ordinary income to the shareholder.
No, a deficiency dividend cannot be paid if the corporation is insolvent.
No, a deficiency dividend cannot be paid if the corporation is in bankruptcy.
No, a deficiency dividend cannot be paid if the corporation has outstanding legal judgments against it.
No, a deficiency dividend cannot be paid if the corporation has outstanding tax liabilities.
No, a deficiency dividend cannot be paid if the corporation has outstanding secured debts.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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