Why do companies issue liquidating dividends

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Although it is seldom the most tax efficient way to dispose of a company, this route is often forced on the vendor because the purchaser refuses to buy the shares instead, for the reasons already explained earlier in this section.Once the assets of the business have been sold by the company, and it has paid the resulting corporation tax on its gains, we are left with what is sometimes known as a “cash-box” company – that is, a company whose only asset is a large bank balance.Shares may also carry the right to dividend and may allow the individual shareholder to benefit from the sale of the company.Each share has a "nominal value" (usually £1) but that has no bearing on the true value of the share or of the company.The provision commonly reads as follows: After the payment of the Liquidation Preference to the holders of the Series A Preferred, the remaining assets shall be distributed ratably to the holders of the Common Stock and the Series A Preferred on a common equivalent basis.

Looking at a dividend first, then at liquidation: It would have been all too easy to rush into a liquidation that would have cost them nearly £100,000 in tax.For example, Preferred Series B shares tend to be senior to Preferred Series A shares, which are senior to common shares.The following language is common: In the event of any liquidation or winding up of the Company, the holders of the Series A Preferred shall be entitled to receive in preference to the holders of the Common Stock a per share amount equal to [x] the Original Purchase Price plus any declared but unpaid dividends (the Liquidation Preference).The usual preference is one times (1x) the original purchase price; in challenging economic times when investors are scarce, the preference may be higher.There are three types of participation features—non-participating, fully participating and capped participation.

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