Legal rules - factors influencing dividend, Finance Basics

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Legal Rules - Factors Influencing Dividend

a) Net purchase rule

States that dividend may be paid from company's profit either past or present.

b) Capital impairment rule

Prohibits payment of dividends from capital i.e. from sale of ssets. This is liquidating the firm.

c) Insolvency rule

Prohibits payment of dividend whenever company is insolvent.  Insolvent company is once where assets are less quite than liabilities. Insolvent company is one whereas assets are less quite than liabilities.  During such a case every earnings and assets of company belong to debt holders and not any dividends is paid.


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