See also final dividend, General Utilities Doctrine.
A liquidating dividend is used when a corporation is dissolving and it needs to distribute its assets to its shareholders.
In fact, for a stock split no entry is required except a memorandum to notice the increase in the number of shares and the decrease in the par value.
331, a liquidating distribution is considered to be full payment in exchange for the shareholder’s stock, rather than a dividend distribution, to the extent of the corporation’s earnings and profits (E&P).
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.
331 when they receive the liquidation proceeds in exchange for their stock.If the corporation distributes its assets for later sale by the shareholders, the assets generally “come out” of the corporation with a basis equal to FMV (and with the related recognition of gain or loss under Sec.331 for the difference between the FMV and the shareholder’s basis in the stock).The shareholders generally recognize gain (or loss) in an amount equal to the difference between the fair market value (FMV) of the assets received (whether they are cash, other property, or both) and the adjusted basis of the stock surrendered.
If the stock is a capital asset in the shareholder’s hands, the transaction qualifies for capital gain or loss treatment.This usually happens when shareholders believe that the company is no longer sustainable or profitable.