Sharon owns 1,000 shares in the Tablet Universe Company and the company just announced that it is paying a liquidating dividend.
Sharon has only received regular dividends before and is not familiar with a liquidating dividend. Regular dividends are distributions of the company's profit that the company pays to its shareholders or owners.
Regular dividends are paid out of a company's retained earnings or the earnings it has accumulated every year since it has been in operation.
Liquidating dividends are distributions to shareholders that comes from its capital base or the amount that shareholders invested in the company.
Creditors are always senior to shareholders in receiving the corporation's assets upon winding up.
However, in case all debts to creditors have been fully satisfied, there is a surplus left to divide among equity-holders.
A liquidating cash dividend is a distribution to that returns some of the original investment to the owners.Often a liquidation is overseen by a receiver, or a chosen representative of the shareholders, who oversees the process to ensure that it runs smoothly and that the corporation maximizes the return from the sale of its assets.When you receive a liquidating dividend, the amount will be reported to you on a 1099-DIV form, in either box 8 or 9.A corporation issues these dividends if it plans to terminate its business or if it plans to merge with another corporation under a new name.When a corporation decides to shut down, it liquidates its assets.