Dividend In Specie

Dividend in Specie Non-Cash Dividends Shareholder Value Corporate Distributions Asset Distribution Financial Terms Corporate Finance Accounting
A dividend in specie refers to a type of dividend that is paid out in forms other than cash. Typically, this can include the distribution of assets, shares, property, or any other physical items that represent the value payable to shareholders.
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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

  1. 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.

  2. 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.

  3. 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.

  • 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

  1. Investopedia: Dividend In Specie
  2. Corporate Finance Institute: Dividends
  3. 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

### What does the term 'in specie' mean in the context of dividends? - [ ] Payment in cash - [ ] Distribution of new shares - [x] Distribution of non-cash assets - [ ] Payment of bonds > **Explanation:** 'In specie' means in its actual form. In the context of dividends, it refers to the distribution of non-cash assets. ### How must a company account for assets distributed as dividends in specie? - [ ] Record as an expense - [x] Revalue to fair market value - [ ] Sell and then distribute proceeds - [ ] Ignore them in financial statements > **Explanation:** The company must revalue the assets to their fair market value before distribution. ### Are dividends in specie taxable to shareholders? - [x] Yes - [ ] No - [ ] Sometimes - [ ] Only if they sell the assets > **Explanation:** Dividends in specie are typically taxable based on their fair market value at the time of distribution. ### Why might a company issue a dividend in specie instead of cash? - [ ] To avoid paying taxes - [ ] Because it has surplus cash - [x] To preserve cash or distribute non-liquid assets - [ ] To reduce liabilities > **Explanation:** Companies may choose this to preserve cash within the company and possibly to distribute non-liquid assets. ### Which of the following could be considered a dividend in specie? - [ ] Cash - [ ] Bonds - [x] Shares of a subsidiary - [ ] Options > **Explanation:** Shares of a subsidiary can be distributed as a form of dividend in specie. ### What type of assets can be distributed as dividends in specie? - [x] Any non-cash assets - [ ] Only shares in another company - [ ] Only real estate - [ ] Only inventories > **Explanation:** Any non-cash assets, such as shares, real estate, or machinery, can be distributed as dividends in specie. ### What must shareholders typically do with the value of dividends in specie for tax purposes? - [ ] Ignore it - [x] Report the fair market value as income - [ ] Report it as capital loss - [ ] Only report if they sell the asset > **Explanation:** Shareholders must report the fair market value of the received assets as income. ### Can a dividend in specie include payment in kind with goods? - [x] Yes - [ ] No - [ ] Only if approved by regulators - [ ] Only for certain industries > **Explanation:** Dividends in specie can include payment in goods or other non-cash assets. ### Dividends in specie result in what type of financial transaction for the company? - [ ] Increase in expenses - [x] Decrease in asset holdings - [ ] Increase in liabilities - [ ] No change in financial statements > **Explanation:** The company's asset holdings decrease as the assets are distributed to shareholders. ### What is a typical consequence of issuing a dividend in specie? - [x] Reduction in the company's asset base - [ ] Increase in the company's cash reserves - [ ] Boost in company's credit rating - [ ] Hyperinflation in company's stock value > **Explanation:** Issuing a dividend in specie usually results in a reduction of the company's asset base.

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Tuesday, August 6, 2024
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