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Liquidating a close corporation

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When a corporation earns a profit or surplus, the corporation is able to re-invest the profit in the business (called retained earnings) and pay a proportion of the profit as a dividend to shareholders.Distribution to shareholders may be in cash (usually a deposit into a bank account) or, if the corporation has a dividend reinvestment plan, the amount can be paid by the issue of further shares or share repurchase.(See also Stock dilution.) Stock dividend distributions are issues of new shares made to limited partners by a partnership in the form of additional shares.Nothing is split, these shares increase the market capitalization and total value of the company at the same time reducing the original cost basis per share.Property dividends or dividends in specie (Latin for "in kind") are those paid out in the form of assets from the issuing corporation or another corporation, such as a subsidiary corporation.They are relatively rare and most frequently are securities of other companies owned by the issuer, however they can take other forms, such as products and services.

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Nothing tangible will be gained if the stock is split because the total number of shares increases, lowering the price of each share, without changing the market capitalization, or total value, of the shares held.Thus, if a person owns 100 shares and the cash dividend is 50 cents per share, the holder of the stock will be paid .Dividends paid are not classified as an expense, but rather a deduction of retained earnings.Dividend cover is calculated by dividing the company's cash flow from operations by the dividend.This ratio is apparently popular with analysts of income trusts in Canada.A dividend that is declared must be approved by a company's board of directors before it is paid.