All of the firm's debts must be paid before it can pay liquidating dividends. A pro rata distribution of cash or property to stockholders as part of the dissolution of a business.
For example, a firm may be liquidated because the officers believe its stock price does not adequately reflect the value of its assets.
The former target company stockholders transfer their basis to their new stock, and when they sell their acquiring company stock they will use that figure to calculate their taxable gain or loss.However, if the merger is for cash and stock, the target company's stockholders must recognize gain attributed to the transaction to the extent they received cash.All debts and other obligations usually must be satisfied before issuance of a final liquidating dividend.A stock paying a liquidating dividend is indicated in stock transaction tables in newspapers by the symbol C, next to the dividend column.Their basis would be increased by the amount of gain they were taxed on.
For example, if a shareholder receives ,000 in cash along with stock from a merger and his investment had grown in value by ,000 based on his original investment of ,000, the following would occur.This means that the business sells off not just any inventory it may have, but its tools of production, building and any other assets it may have.The purpose of this exercise is to gain the money necessary to pay off its debts and then to distribute the remainder to its shareholders through a liquidating dividend.Cromwell holds a bachelor's and master's degree in accounting, as well as a Juris Doctor. Overview of Dividends A dividend is generally considered to be a cash payment issued to the holders of company stock.The capital gain is treated as long-term or short-term depending on whether you owned the shares for longer than a year.