A company must adhere to the provisions of the Companies Act while taking the dividend decision. Identify the related factor of the dividend decision being mentioned in the above line.

Access to capital market

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Legal constraints

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Preferences of shareholders

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Contractual constraints

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Solution

The correct option is B
Legal constraints

A company is denied to distribute as money, dividends of a partnership’s legal capital. This lawful capital is normally estimated by the par value of the common stock of a firm. In certain conditions, the lawful capital is additionally included paid-in capital in an abundance of par or share premium. The company is bound by legal constraints to distribute its dividends to the shareholders.

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Similar questions

Explain the factors affecting the dividend decision.

What is meant by dividend policy decision ? Explain the following four factors which affect the dividend decision of a company.

(i) Legal constraints
(ii) Stability of earnings
(iii) Access to capital markets
(iv) Taxation policy

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