Legal Definitions - liability dividend

A liability dividend is a type of dividend that is paid to shareholders in the form of certificates that entitle them to ownership of capital stock to be issued in the future. This type of dividend is also known as a scrip dividend.

For example, if a company is experiencing financial difficulties and does not have enough cash to pay a cash dividend, it may issue certificates to shareholders that entitle them to receive shares of stock at a later date. This allows the company to conserve its cash while still providing some value to its shareholders.

Liability dividends are typically seen as a sign that a company is experiencing financial difficulties, as they indicate that the company does not have enough cash on hand to pay a regular dividend. However, they can also be used as a way for a company to conserve its cash during a period of uncertainty or to reward shareholders without depleting its cash reserves.