Dividends and Liquidation Quiz

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Dividends and liquidation basics

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Susan McLeggan

Jamaica

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Dividends and Liquidation QuizOnline version Dividends and liquidation basics by Susan McLeggan 1 From what source can a company legally pay dividends? a From future profits. b A company can only pay dividends from its earned or distributable profits, not from its capital. c From reserves regardless of distributable profits. d From its capital. 2 What must a company ensure before paying a dividend? a The company must maximize profits. b The dividend equals all profits. c The company must remain solvent by being able to pay its debts as they fall due and ensuring its assets still exceed its liabilities after the dividend is paid. d The directors' personal wealth. 3 Why are there legal restrictions on paying dividends? a The restrictions protect creditors by ensuring company assets remain available to pay outstanding debts and maintain financial stability. b To speed up cash flow. c To increase executive bonuses. d To confuse shareholders. 4 What are the consequences of paying an unlawful dividend? a Shareholders may have to repay the dividend if they knew it was unlawful, directors may be personally liable, and the company may face legal action. b No consequences. c Only fines to the company. d Only shareholders repay. 5 When is a dividend considered unlawful? a When it is paid to all shareholders. b A dividend is unlawful when it is paid without sufficient distributable profits or when paying it would make the company unable to meet its financial obligations. c When directors disagree. d When profits are high. 6 Who may be held liable for an unlawful dividend? a Only the company. b Only auditors. c Only shareholders who didn't know. d Both directors who authorized the payment and shareholders who knowingly received the unlawful dividend may be held liable. 7 What is liquidation? a A voluntary reinvestment. b Filing for bankruptcy without asset sale. c A process of expanding business. d Liquidation is the legal process of closing a company by selling its assets, paying its debts in the legal order, distributing any remaining funds to shareholders, and dissolving the company. 8 who is to be paid last in the order of payment when a company is being liquidated ? a Employees b Directors c Creditors d Shareholders

Dividends and Liquidation QuizOnline version

Dividends and liquidation basics

by Susan McLeggan

From what source can a company legally pay dividends?

From future profits.

A company can only pay dividends from its earned or distributable profits, not from its capital.

From reserves regardless of distributable profits.

From its capital.

What must a company ensure before paying a dividend?

The company must maximize profits.

The dividend equals all profits.

The company must remain solvent by being able to pay its debts as they fall due and ensuring its assets still exceed its liabilities after the dividend is paid.

The directors' personal wealth.

Why are there legal restrictions on paying dividends?

The restrictions protect creditors by ensuring company assets remain available to pay outstanding debts and maintain financial stability.

To speed up cash flow.

To increase executive bonuses.

To confuse shareholders.

What are the consequences of paying an unlawful dividend?

Shareholders may have to repay the dividend if they knew it was unlawful, directors may be personally liable, and the company may face legal action.

No consequences.

Only fines to the company.

Only shareholders repay.

When is a dividend considered unlawful?

When it is paid to all shareholders.

A dividend is unlawful when it is paid without sufficient distributable profits or when paying it would make the company unable to meet its financial obligations.

When directors disagree.

When profits are high.

Who may be held liable for an unlawful dividend?

Only the company.

Only auditors.

Only shareholders who didn't know.

Both directors who authorized the payment and shareholders who knowingly received the unlawful dividend may be held liable.

What is liquidation?

A voluntary reinvestment.

Filing for bankruptcy without asset sale.

A process of expanding business.

Liquidation is the legal process of closing a company by selling its assets, paying its debts in the legal order, distributing any remaining funds to shareholders, and dissolving the company.

who is to be paid last in the order of payment when a company is being liquidated ?

Employees

Directors

Creditors

Shareholders

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Dividends and Liquidation Quiz

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About this activity

Created by

Download the paper version to play

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Dividends and Liquidation QuizOnline version

by Susan McLeggan

From what source can a company legally pay dividends?

What must a company ensure before paying a dividend?

Why are there legal restrictions on paying dividends?

What are the consequences of paying an unlawful dividend?

When is a dividend considered unlawful?

Who may be held liable for an unlawful dividend?

What is liquidation?

who is to be paid last in the order of payment when a company is being liquidated ?