Overview
A “Dividend In Specie” denotes a distribution of assets by a corporation to its shareholders instead of distributing them in cash. This can include tangible items, stocks in a subsidiary company, real property, or other non-cash assets. The term, derived from Latin, translates to “in its actual form,” indicating that the dividend is given in a substance other than cash.
Examples
-
Distribution of Shares:
- A company may choose to distribute shares of a subsidiary or another entity as dividends. For instance, if Company X owns a significant stake in Company Y, it might distribute shares of Company Y to its shareholders as dividends in specie.
-
Real Property:
- Real estate, such as land or buildings, can be distributed as dividends in specie. A company owning commercial properties might transfer ownership of a property to a shareholder.
-
Tangible Assets:
- Distribution of machinery, inventory, or other physical assets. For example, a manufacturing company might give out excess machinery as a form of dividend to its shareholders.
Frequently Asked Questions (FAQs)
What is a dividend in specie?
A dividend in specie is a type of dividend payment made in the form of assets rather than cash. It can include shares of a subsidiary company, real estate, machinery, or any other type of non-cash assets.
How is a dividend in specie accounted for?
From an accounting perspective, the company distributing the dividend in specie must first revalue the assets to their fair market value. Then, the distribution is treated similarly to selling the assets at that value and distributing the proceeds to shareholders.
Are there any tax implications for dividends in specie?
Yes, dividends in specie often have tax implications both for the company and the shareholders. The company may trigger a capital gains tax if the allocated assets have appreciated in value. Shareholders might also have to pay taxes based on the fair market value of the received assets.
Why might a company choose to pay a dividend in specie?
Companies may opt for this method to preserve cash within the company, distribute non-liquid assets, or divest ownership in certain subsidiaries or properties.
How do shareholders benefit from a dividend in specie?
Shareholders can directly own valuable assets or receive shares in another company. This can diversify their investment or provide opportunities for additional revenue streams depending on the nature of the distributed assets.
Related Terms
- Stock Dividend: Distribution of additional shares to existing shareholders instead of cash.
- Cash Dividend: Regular dividend payments made in the form of cash to shareholders.
- Property Dividend: Another term for dividends in specie, representing the distribution of physical properties.
- Capital Gains Tax: Tax on the profit realized on the sale of a non-inventory asset.
Online References
- Investopedia: Dividend In Specie
- Corporate Finance Institute: Dividends
- Tax and Accounting Guides: Dividend Subjects
Suggested Books for Further Study
- “Corporate Finance: Theory and Practice” by Pierre Vernimmen
- “Dividend Policy and Corporate Governance” by Harry DeAngelo, Linda DeAngelo, and Douglas J. Skinner
- “Principles of Accounting” by Belverd E. Needles Jr. and Marian Powers
- “Business Valuation and Mergers and Acquisitions” by Luis E. Pereiro
Accounting Basics: “Dividend In Specie” Fundamentals Quiz
Thank you for exploring the intricate details of Dividend In Specie and engaging with the provided quiz. Keep enhancing your financial literacy and corporate finance knowledge!
